“Real Unemployment” at 16%? Color Me Skeptical

August 27, 2009

You may have seen the recent headline “Real US unemployment rate at 16 pct: Fed official. A snippet:

“If one considers the people who would like a job but have stopped looking — so-called discouraged workers — and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.

UPDATE: Commentor Tom M. takes note that Mr. Lockhart is probably refering to the U6 numbers and this fact was simply not reported appropriately. He says:

When economists, such as myself, talk about the “real” unemployment rate, we are usually referring to the U6 unemployment figure, which is the U3 rate (the published/official rate) plus people that are “part time for economic reasons” among other groups.

If that is the case, it makes most of the rest of what I have to say pretty much void, but I’ll leave it up anyway. Thanks Tom!

A little while back, I called “discouraged workers” the “despair numbers” (basically, they say they want a job, but they aren’t looking for one).

My conclusion was that we’ve always had despair or discouraged workers, so suddenly adding them in now seems like a dishonest tactic to artificially inflate unemployment to some scary level. In good times, we saw unemployment at about 4-5%, so we’re used to thinking about that range as being good. But if you add the “discouraged workers” in those good times, you’re looking at a “good” unemployment rate of about 7-8%.

As for the “wants to work more hours” crowd, I’m open to considering that group in some way, shape or form, but I don’t know how to add them in a way that is honest. Frankly, as a small business owner and contractor, I don’t work as many hours as I would like. But I don’t go around calling myself “unemployed” or even “underemployed”.

If you look at the Bureau of Labor’s stats on part time workers, you can see that the number has jumped about 3 million in the past year. If we add those workers plus the increase in the “discouraged workers” (about 1 million), we get a rate a little over 12%.

But the problem in my mind is that you can’t simply add part time workers to the “unemployed” list to get any kind of meaningful data. Maybe, for the sake of argumentation, you could could cast an involuntary part time worker as half a worker. Then the unemployment rate is a shade over 11%. This is, I think, a not-unreasonable number to use, given that it shaves off the standard number of “discouraged workers” and uses a dampening variable to account for the fact that part-time workers aren’t really “unemployed”, but “underemployed”.

But I could be easily convinced that crunching the numbers in a new and interesting way is basically statistical cheating and we should just use the standard definitions.

Overall, I’m really uncomfortable with the whole “let’s crunch the numbers so the situation look really terrible” methodology because all it does is try to cast the current situation in a bad light by changing the metric. But you can’t use one metric in the good times and another metric in the bad times.

As such, I think the 16% number is really more of a scare tactic than anything else.

11 Responses to ““Real Unemployment” at 16%? Color Me Skeptical”

  1. Jesse Says:

    I agree that this is clearly an attempt to make the economy look worse, but I think it is mostly in reaction to those who are declaring recovery after a .1% decrease in the unemployment rate… The jump in discouraged workers is an important data point in itself nonetheless.

    The best way to gloom and doom is to talk about the national debt and our consumption-fueled phony economy that’s reliant on foreign energy anyway.

  2. What would be the benefit to the scare tactic? It seems to make more sense to create a lower # so that people think the worst is over and they go out and spend again.

    • Jaydee Says:

      True, however, there are now, as there have always been and always will be, those who wish failure on whoever has the “upper hand” politically. So Republicans try to scare the masses when the Dems have the “upper hand” and vice versa. The only way to stop it is to make everyone in the world intelligent enough and educated enough to see through the lies. We have a hard enough time teaching everyone to read… good luck with that one.

      • jtopp Says:

        So you’re saying this is a Republican conspiracy theory made popular by one Federal Reserve Official?

        Any proof that Lockhart is a Republican? It may very well be true, but just saying it seems unlikely that the “upper hand” wouldn’t come back with their own “positive” data to combat what he’s spouting.

      • Jake McKenzie Says:

        The opposition party is recent history will always call fowl fiscally on anything. The republicans will end up supporting universal healthcare like they ended up supporting medicade and medicare. We need reforms of our top banking institutions and we need to stop allowing China to threaten us financially.

  3. Jake McKenzie Says:

    Well you are from Utah if I remember correctly, you have a much better job market.

    I think people underestimate the size of the US. I am from Florida and we aren’t doing as well down here, from mortgage fiasco, job market, and hurricanes for the past couple years. In many conservative states you are seeing large segments go liberal. Florida is going liberal because the large segments of the population of tired of the traditional conservatives like Huckabee who call for a “fair tax” which any rational person knows is not “fair” at all. Same thing can be said for Texas, especially in the south texas, which is moving up the eastern part of texas.

    If a European was asked if the EU could accurately determine the unemployement you would be laughed at for days. The country is to large for a small body of men to determine these things.

    The fact of the matter is some states are doing outright terrible, and many of those are ones who went Obama. If you look at population trends, the UN predicted by 2050 America will go from 60% urban population to 80%, if you think what obama is doing is over reaching you better realize the trend that America is going in and how the urban population tends to vote. The republican party better become a party of progress like they in and around the time of T. Roosevelt or they will fall to the way side.

    I don’t care which party you affiliate with, I will vote for the one that seems the most forward thinking. To long has America turned it’s back on progress.

  4. Tom M Says:

    What is omitted from both this post and the article on Breitbart is where the number is derived from. When economists, such as myself, talk about the “real” unemployment rate, we are usually referring to the U6 unemployment figure, which is the U3 rate (the published/official rate) plus people that are “part time for economic reasons” among other groups. The U6 is offically tracked by the BLS and is not some made up number created for political reasons. I read this blog because its smart and insightful. To come out swinging in a post like this without even doing the most basic background work makes me sad.

    FYI, the U6 rate was 15.9% in July.

    • politicalmath Says:

      Thanks for the information. By the way, according to the BLS, the U6 rate was 16.3 in July.

      I apologize for my ignorance… I’m (obviously) not an economist. I’ll fix my post to include this information.

      I would like to point out, however, that “basic research” is actually quite difficult. Unless you are already familiar with the terminology, it is very hard to know what people are talking about.

      Do a Google search for “real unemployment rate” and you’ll see what I mean. There are people who are reporting the U6 numbers, but very few of them explain how or where the numbers came from in a way that is as clear as your explanation. Instead they say something along the lines of “You may think the unemployment rate is X, but it’s really Y… everyone panic!”

      It is this latter expression I’m trying to combat. I’m going to go ahead and maintain that using different metrics without acknowledging that you’ve switched metrics is very poor numerical communication (which is really what this blog is all about).

    • politicalmath Says:

      By the way, I’d like to take the time to say “Thank You” for pointing this out to me. I’m still in the steep part of the learning curve on many of these issues and if it weren’t for readers like yourself, I would simply remain in ignorance. Your help is deeply appreciated.

  5. M.C. Says:

    Not sure how else to contact you as I am unable to find a contact page for you. Please email me at my address as I would like to discuss a proposal with you. It is rather urgent that I get a hold of you, please email me and let me know what is the best way to connect with you.


  6. mdshellen Says:

    Love the site. If you’re interested in more information on government statistics and the long history of political tampering therewith, try http://www.shadowstats.com, run by John Williams. He tracks government “tweaks” to statistical measurement, and tracks the current version of each measure against a baseline measurement. He also maintains primers on each statistical category outlining changes over time.

    Suffice it to say, comparing the U3 (or U4, 5, or 6) from 1980 to the “same” statistic in 2009 is NOT apples-to-apples.

    The biggest problem with U3 (IMO) is that people are statistically moved out of U3 after a period of time (eg, when benefits run out), meaning that U6 has recently started to climb more quickly than U3, and the spread between the two has widened.

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