Unemployment Numbers Work

Unemployment Numbers Work
January 5, 2012

As the federal government’s officially reported unemployment rate has trended downward in the past few months, many on the political right have noted that some of the decline comes from people who have stopped looking for work.

In the century’s first decade, when the economy was growing and unemployment dropping, many on the left attacked President Bush on the same grounds.

On both sides of the aisle, many agree we should look at broader measures of employment that include individuals involuntarily working part time, people who have stopped looking for work, and those who might be able to work but don’t do so because government support payments discourage it. The government already counts people in the first two categories but doesn’t include them in the single most commonly reported unemployment number.

Measuring employment and unemployment is harder than it may appear at first blush. In December, with a reported 8.6 percent unemployment rate, only a hair over 60 percent of all Americans 18 and older had jobs. Thus, by the broadest definition of the word, 40 percent of Americans are “unemployed” right now.

Obviously, that isn’t the case. The overwhelming majority of those not working are doing socially desirable things such as caring for children, living off of retirement savings or going to school, and many other nonworkers are disabled or incarcerated. To adjust for these factors, the reported unemployment rate attempts to measure the number of people who want to work but aren’t employed.

Even this is easier said than done. There are legitimate arguments for counting as unemployed many left out of even the broadest measures anyone now uses. For example, 65-year-olds who get laid off often will decide to “retire” even when they might want to continue in the same line of work for another few years and would accept job offers that land in their laps. What about smart “underemployed” college graduates working in low-paying retail jobs? It seems plausible to argue that they are unemployed in some fashion even if they report 40 or more hours of work every week.

Although there are elements that push down the reported unemployment rate, there are others that tend to push it up: Even though the currently used measure of unemployment (called the U-3 by its keepers in the Bureau of Labor Statistics) excludes people who have given up looking for work, it includes full-time students seeking part-time work and people searching for their first jobs. We want these people to be able to find jobs as soon as possible, but they aren’t what we typically think of as the unemployed. Even in the current not-so-great economy, only about 5 percent of Americans are looking for work because they lost their previous jobs. Less than half of the unemployed, likewise, have been out of work more than 15 weeks.

In the end, the sheer complexity of determining who should be counted as unemployed makes it unlikely that we will arrive at a single perfect measurement of joblessness that will satisfy everyone, especially political partisans.

The government’s official recordkeepers publish six measures of unemployment and, over time, they might add more. The current set of measures was last revised in 1994 and may need to be revised again. But as a way of comparing the state of the workforce over time, the current measures of unemployment provide a reasonable enough approach.

Eli Lehrer is vice president of Washington operations for the Heartland Institute and national director of its Center on Finance, Insurance and Real Estate.