Welcome to the first “Behind the Headlines” blog post. The goal of this blog section is to provide information that may not be covered in the media headlines on various economic topics.
Today’s post focuses on what is behind the official unemployment figures reported in the headlines and potential alternative figures that you may want to consider.
First let’s review some of the basics on the unemployment report.
So, what exactly is the official unemployment rate? In plain English the official unemployment rate measures those people who do not have a job, want a job and are available to work. The catch is that you have to be actively looking for work during the 4 weeks leading up to each month’s survey to be considered unemployed! Under this definition, you have the scenario where someone is out of work, wants a job but may have given up looking for work. This is especially true during the recovery that has been underway since the last recession. Many workers have grown frustrated over the inability to find a job and may have just stopped looking until economic conditions improve. In this scenario the government basically says: “Congratulations, you are not unemployed…you just don’t have a job!”. This is why many people question the accuracy of the official unemployment rate.
Luckily, the BLS provides alternative measures of unemployment. This allows each person to draw their own conclusions based on who they consider to be “unemployed”. Here is a breakdown of the official and alternative measures of unemployment.
Official unemployment rate is call U3. The alternatives are:
U4: Everyone in U3 plus discouraged workers. Discouraged workers are people who indicated that they have stop looking for work for job related reasons. There may be a variety of “job related” reasons, but the most common would be someone who cannot find a job to match their skills or salary requirements.
U5: Everyone in U4 plus marginally attached workers. Marginally attached workers are people who are not working and are not currently looking for work but indicate that they want to work, are available to work if a job is available and have looked for work sometime in the past 12 months.
U6: Everyone in U5 plus people who are involuntarily working part-time due to economic conditions and want to work full time.
So, depending on your perspective of what you think is the most accurate definition of “unemployed”, here are the facts as of June 30, 2014:
U3: 6.1% U4: 6.5% U5: 7.3% U6: 12.1%
That is your information “behind the headlines”.
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Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.