The BLS released the most recent unemployment statistics just a couple of days ago. Their report shows the unemployment rate has dropped to 7.8%, the lowest unemployment rate since President Obama has taken office. Some people (especially the people at FOX news) are suspicious of this number. The timing of the election, Obama’s debate performance and multiple other factors in politics all play into this suspicion. Here’s a FOX News video:
So yes, politically speaking the low unemployment rate is coming at a crucial time. But as you can see from the picture at the beginning of this post, the unemployment rate has been steadily decreasing ever since November/December of 2010. The sharp decrease in September, as surprising as it is, isn’t out of the realm of possibility. I highly doubt anybody is “cooking the books” or anything ridiculous like that. FOX News COMPLETELY trusted the BLS when its statistics made President Obama look bad; they couldn’t stop defending the statistics back then! So I truly believe they are just trying to get as many people to dislike President Obama as possible. Nobody is cheating the system…
With that said, you should know that the unemployment rate that we normally hear about is still misleading. I doubt there was any cheating involved, but the 7.8% might not be an improvement.
The most telling rate is known as U-6. What’s the difference?
Intro to Macroeconomics time!
- U-3 (Official Unemployment Rate) – Total unemployed, as a percent of the civilian labor force.
- U-6 (Broader Unemployment Rate) - Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.
NOTE: 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. 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. Updated population controls are introduced annually with the release of January data.
So what can the layperson make of the difference between the U-6 rate and the U-3 rate? U-6 accounts for all of those who fall into the 7.8% (official unemployment rate) IN ADDITION TO underemployed workers AND “discouraged workers” (workers who are no longer actively seeking a job). Put even simpler?
It paints a much more realistic picture of the true unemployment rate in America.
It is more accurate because the official unemployment rate (the 7.8%) doesn’t take into account the underemployed or the discouraged workers. So if somebody decides to stop looking for work altogether the official unemployment rate will decrease even though that person didn’t actually find a job. I’m sure you see the problem. Naturally, that means we should really be looking at this rate to determine if the 7.8% rate is truly significant. Here are the possible scenarios:
- If U-6 decreases significantly then the decrease to 7.8% in official unemployment is validated. We are better off.
- If U-6 increases then the number of jobs created were outnumbered by the jobs lost + new underemployed/discouraged workers. We are really worse off.
- If the U-6 stays the same then the jobs gained and the jobs lost essentially cancelled each other out. There were just more underemployed/discouraged workers this time, so the official unemployment rate still dropped significantly. Not much has changed.
U-6 was 14.7% in August and 14.7% in September. There was no change from August to September, so the decrease in the official unemployment rate is misleading. Not much has changed. Were the books cooked? Highly doubt it. Just more underemployed and discouraged workers. No need to start conspiracy theories… Jeez.
*** The numbers were taken from seasonally adjusted unemployment statistics. Seasonal unemployment is unavoidable and therefore unnecessary to include in these statistics. ***