There’s only one problem with the headline unemployment rate of 6.7 percent: hardly anyone believes it.
What is the real rate? The number most commonly reported is 6.7 percent, down considerably from 2010, but everyone seems to have their own opinion.
“The 6.7 percent is probably 21 or 22 percent in real numbers,”Donald Trump reported to the Conservative Political Action Conference in March, citing nothing about how he arrived at that estimate.
Forbes columnistDavid John Marotta stated in January, “Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent.”
Then, there are always people who don’t believe the numbers or offer any figures. As former CEO of GEJack Welch famously tweeted in 2012, “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.”
Where do any of these numbers — official or not — come from?
The Bureau of Labor Statistics publishes its Employment Situation Summary on the first Friday of every month. Any financial reporter worth their pay rushes to look over the official-looking press release, which is still sent to the web in the typewritten look of Courier font. But many take away just one figure: the headline unemployment rate.
This number is also known as the U3 unemployment rate from its official designation. Many economists have come to believe that an alternative measure, the U6, is amore reliable indicator, but the press still relies on the traditional headline number.
“My take on this is that at the very least you should look at both measures,” Paul Krugman said in an analysis of the two rates. In order to understand what Krugman is talking about, it’s best to start from the beginning and look at how these numbers are calculated.
The official numbers are generated from the monthly Current Population Survey. It’s also known as the Household Survey, as 60,000 households are contacted for answers to questions about employment status in a system that has not changed significantly since it was introduced in 1948.
The results are then subjected to seasonal adjustment, which is used to smooth out month-to-month variations that are well-known because they appear every year. The data are then collated into these numbers:
Population: The overall population of the United States is 314 million people, but not all of them could reasonably be working. The Bureau of Labor Statistics uses the civilian noninstitutional population, or CNP, as its baseline. The CNP includes everyone who is over 16 years old and is not in prison or a mental health facility, or otherwise incapable of working. In March, that stood at 247 million potential workers.
Civilian Labor Force: This is the number that includes everyone who either has a job or is actively looking for one. It also excludes all military personnel, hence “civilian.” The total is 156 million, or 63.2 percent of the CNP, a ratio known as the labor force participation rate. This is essentially the CNP, minus everyone who is in school, retired, staying home to raise children or otherwise not part of the working population. This is the definition that causes the most debate and it is the baseline for most of the calculations done by the Bureau of Labor Statistics.
Employed/Unemployed: There are two components to the civilian labor force — 145.7 million people are employed and 10.5 million are not. The ratio of unemployed to the CNP is the headline unemployment rate, which is known to the Bureau of Labor Statistics as the U3 unemployment rate.
Employed Part-Time for Economic Reasons: Within the civilian labor force, the Bureau of Labor Statistics notes those working less than 40 hours a week who would like to work full-time. That stands at 7.4 million, or 4.7 percent of the labor force.
Marginal Workers: There are 2.2 million people, or 1.4 percent, who are not counted in the civilian labor force because they have not been looking for work for one reason or another but may in the near future. This includes 700,000 “discouraged workers” who are not out looking for a job but would like to have one, plus 1.5 million people who have chosen to go to school or stay at home but could be available for work, if needed. Marginal workers are not included in the civilian labor force.
U6 Unemployment: This is the broadestdefinition of unemployment because it includes those part-time for economic reasons and marginal workers. Below is a chart of the U6 unemployment rate, which stood at 12.8 percent in March 2014, or about one available worker in eight:
This number, the broadest official measure of unemployment, is important for many reasons. Fed Chair Janet Yellen has referred to it on a number of occasions, saying in herfirst press conference, “Certainly look at broader measures of unemployment. …With 5 percent of the labor force working part‐time on an involuntary basis, that is an exceptionally high number relative to the measured unemployment rate.”
It’s only been officially tabulated since 1994. It has a shorter history than the headline U3 number, which may explain why it hasn’t been as widely cited. The current number, down from a high of 17.1 percent in March 2010, is still higher than any previous peak in the last 20 years, showing how weak the job market still is.
The other numbers often cited? We will never know where Donald Trump got his estimate of 22 percent. The figure of 37.2 percent is simply the inverse of the labor force participation rate, meaning it counts everyone who is not working, regardless of why they may have chosen to not work. The other problem with this number is that it implies that the unemployment rate never went below 40 percent from 1948 to 1968, when thelabor force participation rate was much lower than it is today.
With so many figures to consider, what is the real unemployment rate? If you have to use only one number, then the U6 is definitely the best choice.
“When you’re looking at food stamps, you want a sense of how many Americans are in economic distress — and a broad measure like U6 comes closer to doing that than the narrow measure usually cited,” Paul Krugman has noted.
Then again, there will always be people who don’t believe any of the official numbers, like Jack Welch or Donald Trump. As long as you cite your source, and perhaps explain why you have confidence in it, there is certainly room for different ideas of what “unemployment” is.