The official rate of unemployment recognized by the U.S. Department of Labor is on course to reach double digits by Summer 2009. This comes as no surprise, with corporate giants like General Motors filing for bankruptcy and cutting tens of thousands of jobs. However, an alternative, more comprehensive measure of unemployment suggests the current situation is much worse than the commonly reported numbers indicate.
In 1994 the Bureau of Labor Statistics revised its methodology for measuring employment in the U.S. to include both unemployed workers, as well as all other forms of labor underutilization. The government now compiles unemployment figures in six different categories (U1-U6). U3 is accepted as the official rate, and includes the unemployment measures widely reported in the media familiar to everyone, but the numbers tend to downplay the bad news.
U6 encompasses the broadest range of labor underutilization. It includes workers in the U3 calculation plus those employed part time due to the economy. Someone who wants full-time employment but settles for a part-time position falls into this category.
But the U6 figure also includes “discouraged” and “marginally attached” workers. Marginally attached workers want and are available for work, but have not actively searched in the past month. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking for work recently. These people are unemployed, but excluded from the data set used to compile U3.
When the recession began in December 2007, U3 and U6 were at 4.9% and 8.7%, respectively. Fast forward to May 2009. U3 was 9.4% and U6 reached an all-time high of 16.4%.
The numbers are highly correlated, which demonstrates that as the unemployment rate increases, so too does the portion of the population suffering from other types of work deficits.
The inclusion of the U6 measure in unemployment statistics provides greater visibility into the state of the economy. Whether unemployed or underutilized, many out-of-work Americans are excluded from the official U3 measure, dramatically understating the number of workers who have been or are currently looking for jobs.
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