A Closer Look at Unemployment

Thursday, September 06, 2007 | 07:19 AM

All eyes are on Friday's NFP Report. With the markets desperately rooting for a Fed cut, especially after yesterday's rather punk ADP Employment Report, tomorrow's BLS release is eagerly awaited.

In the past, I have frequently mentioned that I was not a big believer in the headline Unemployment number. Its methodology -- the Household self-reported survey -- is suspect, and it simply ignores too many people who are unemployed.

It is not that the unemployment rate is so very bad -- its just not nearly as good as the 4.6% we have heard the BLS report. If there were that much of a labor shortage, than real wages have likely risen much more than they did over the past few years.

This line of argument is often greeted by skepticism (what are you, a conspiracy theorist?).

However, what many people seem not to realize is that the source for alternative measures of unemployment comes from none other than the Bureau of Labor Statistics themselves. They actually have quite a few official measures of Unemployment -- not that you ever hear about the others.

There are actually six BLS reported measures of Unemployment. (They can be found here: Table A-12: Alternative measures of labor underutilization)

The headline number that you will hear tomorrow -- what BLS calls "the official unemployment rate" -- is called U3. It is defined as the "Total unemployed, as a percent of the civilian labor force."

For the mathematically inclined, that looks something like this:

Unemployment rate = (unemployed) / (employed + unemployed)

Take those termed unemployed, divide that into the civilian labor force, and you get a percentage.>

Let's look at the other measures of Unemployment BLS reports that are more inclusive than U3.


Alternative Measures of Labor Underutilization
Measure: Definition:
U1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
U3 Total unemployed, as a percent of the civilian labor force (the official unemployment rate)
U4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
U5 Total unemployed, plus discouraged workers, plus all other marginally attached workers as a percent of the civilian labor force plus all marginally attached workers
U6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers (the "real world" unemployment rate)
Note: Marginally attached workers are those who are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.
Discouraged workers, a subset of marginally attached workers, have given a job-market-related reason for not currently looking for a job.
Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.


How do these various unemployment measures shake out?

U4 = 4.9%

U5 = 5.5%

U6 = 8.3%


Here's a graphic comparison:


(thanks, Oregon!)


Now you know . . .



Table A-12: Alternative measures of labor underutilization

Measuring Available and Underutilized Labor Resources
Federal Reserve Bank San Francisco
Economic Letter, 2000-06; March 3, 2000

How the Government Measures Unemployment
U.S. Department of Labor, Bureau of Labor Statistics. 1994.
Report 864 (February)

Alternative Measures of the Unemployment Rate
Eric Moore
Oregon Employment Department, Mar-29-2006   

Thursday, September 06, 2007 | 07:19 AM | Permalink | Comments (26) | TrackBack (3)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference A Closer Look at Unemployment:

» ADP, NFP Numbers from The Big Picture
Construction and Financial Employment Changes Source: ADP, Macroeconomic advisors Tomorrow we learn what BLS data shows for the Non-Farm Payroll data for February. Consensus is for a meek 25,000 new jobs created. However, given the present concerns abo... [Read More]

Tracked on Mar 6, 2008 7:09:20 AM

» More on Unemployment Rates from The Big Picture
Over the past few days, we've been discussing job creation and the various ways to think about unemployment. This has been a long standing theme around here (Augmented unemployment rate, as well as the NILF issue -- Not In Labor Force). See the list at... [Read More]

Tracked on Mar 6, 2008 10:13:36 AM

» Jobless vs. Unemployed from The Big Picture
In today's NYT, Floyd Norris hits on a subject that has been a favorite of ours over the years: Finding the true measure of the economy's labor situation.The unemployment rate is low. The jobless rate is high.Those two seemingly contradictory statement... [Read More]

Tracked on Apr 12, 2008 9:24:00 AM



Comparos for other business cycles for the other measures of unemployment?

Is U6 at 8.3% high or low relative to other times?

Two data points are difficult to interpret as a trend, but since 2005, the U6 has decreased by 6.7% (from 8.9% to 8.3%).

Posted by: Grodge | Sep 6, 2007 8:04:11 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™