Mark, I didn’t feel like I answered your question about the “real unemployment rate” and I wanted to give you an explanation of why I don’t use that number. First of all it is very complicated and the answer would have taking about 5 minutes and I would have lost the audience because of its complexity. So here is my attempt to give you a correct answer.
So I said yesterday that the number that I use in my presentation has been the “real” number for 60 years and it seems like that is all we look at but the government has six classifications of unemployed in this country and it is published by the BLS(Bureau of Labor Statics) every month. For example, I mentioned on Wednesday about Baby Boomers and how they are counted in these numbers and it makes the count inaccurate for a forecast.
Here is the explanation of why I don’t like to use it in my presentation. First, because of its complexity, we have to ask some questions, what about retired people? Or people who don’t want a job? What about people who would like a job, but have given up looking because they don’t think there are any jobs available? What about people who only work a couple of hours a week because their hours were cut, but would really rather work full-time?
These questions have caused the U.S. Bureau of Labor Statistics (BLS) to come up with six different measures of unemployment, classified as U1 through U6. U3 is the generally accepted and commonly quoted “Unemployment Rate”. This is the number I use because it is thought of as one of the leading indicators as I mentioned and the one that most people hear about on television. In the past few years, news programs talk about the “real rate” and while there has always been a real rate published it was hardly ever talked about until recently. There is and has always been a gap between these two rates.
U-1 is the narrowest definition of unemployment and U-6 is the broadest measure of unemployment. U-6 includes all classes of Unemployed even those considered “marginally attached” and/or part-time for economic reasons. In other words, those who would like a full-time job but can only find part-time work. Or perhaps they were working a full-time job and their employer cut their hours rather than actually laying off employee. It also uses those who don’t really want to work and are not looking. This is the number you were asking about. I am not going to define U-2, U-4 or U5 because they are just variations or subsets of these statistics.
According to the BLS, persons “marginally attached” to the labor force are those who currently 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 past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work (in other words they want a job but don’t think there are any available so they don’t even look). 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.
One of the statistics that have made these numbers less reliable is the over whelming retirement of the baby boomers who are the largest population group in US history. There are 10 thousand of us retiring every day and it has impacted this figure enough to make it unreliable, so most economists don’t use it for public presentations. It is also charged with political implications. So while U6 is in the report from the Bureau of Labor Statistics monthly report I don’t use it because it usually falls or rises at the same level as U3. And since I think trend lines are more important than actual rates, because that are a better predictor of the future, I see no real reason to discuss U-6 over U-3.
You may remember early on I said that sometimes we can create jobs and the unemployment rate will rise, that is because as we create jobs more people will come into the market and take the rate up. This was the case from 2009 until the start of 2014, in the past year that has not happened in any month so far. It leads economists to conclude that those who are unemployed are not that interested in work or that they don’t have the skills and are not willing to invest in improving skills to take available jobs.
So it was a great question but you can see it is very complex and if I don’t have a slide to allow those in the audience to follow my presentation I lose the group really fast.
I hope this helps and if you want to send it to the dealer in the front of the room who had the same question please feel free.
I was great to see you I am hoping to catch up with you at Bob’s party next month.