Pick your unemployment rate: 2%, 6% or 10%
I occasionally hear from people who argue that the official unemployment rate understates the pain of the recession because it excludes people who have simply given up on finding a job. It’s a complex subject, addressed here in the Huffington Post, but one that can be argued with some precision, because the federal government actually publishes six unemployment rates, not one. They range from U1, a very narrow measure that essentially covers the long-term unemployed, to U6, a broad measure that includes “discouraged workers” and people who are working part-time, but say they would like to work full-time.
These estimates date back about 15 years, but until recently they were only calculated for the nation as a whole. Now they’re also available at the state level.
Missouri’s official unemployment rate, for example, was 6.1 percent for 2008. That jumps to 6.9 percent when you add discouraged and “marginally attached” workers, which essentially covers people who once were on the unemployment rolls but have stopped looking for work. It jumps to 10.1 percent when you include the people who are part-time but want to be full-time.
In Illinois, last year’s official rate is 6.6 percent. Adding discouraged and marginally attached workers raises that to 7.6 percent; adding the part-timers boosts it to 11.7 percent. On the broad U6 measure, Illinois ranks eighth-highest in the nation.
By the narrowest measure, U1, Missouri’s long-term unemployment rate is 2.1 percent and Illinois’ is 2.6 percent. U1 measures people who have been jobless for 15 weeks or longer. (It’s worth noting that all of these state rates are averages for the year. Because the economy deteriorated so rapidly, the year-end rates, no matter which measure you prefer, almost certainly were higher than the annual averages.)
Which measure is best? I’ll stake out the middle ground: For most purposes, the official rate deserves the headlines because we can compare it with decades of history. If we’re trying to count the sheer number of people who are struggling in this economy, though, the broader measures are also useful.
(1 votes, average: 4 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
It would be interesting to know the values for U6 at times when the economy is at “full employment,” which is recognized by mainstream economists and politicians as being around 3% by the “standard” measure.
People on the extreme left naively believe that the only “socially just” situation would be zero unemployment. Well, that’s like believing that all motel rooms and all airline seats should always be 100% full. It would not be workable and would not be “fair” to consumers because it would create labor shortages in industries that would be unable to hire new workers without greatly increasing prices.
I’m not claiming that the current levels of unemployment — however measured — are desireable. As I have said before, I think that the monetary stimulus by the Federal Reserve and the fiscal stimulus proposed by the Obama administration are basically appropriate.
But firms, government agencies, and their managers and employees could contribute to the fight against unemployment by reducing their wage demands and prices. On that note, here’s a quote from Bloomberg News about the way that public employee unions in New York State (one of the most liberal Democratic states)are sabotaging this approach:
“On March 24, (Governor David) Paterson (Democrat) said he may have to drop 8,900 jobs from a state payroll estimated at 199,400, after unions rejected his proposal to eliminate a previously negotiated 3 percent pay increase.” Even Democrats sometimes run up against economic reality.
I was at the annual wild-game party yesterday with guys I hunt and fish with. There were 14 guys present. We were talking about unemployment and looked around at our group in the garage (it was raining outside). Two are retired (so I’ll won’t consider them). Of the total number of 12 non-retired, three are A-B union workers (worried), one A-B non-union (very worried), one maintenance worker, one union sheet metal working (work slow down causing short days)… so I’ll consider these 6 employed.
There were three people released from A-B (1 IT, 2 Lab), one union bricklayer, one union painter (working part-time), one released from Chryler.
That’s 6 employed and 6 unemployed (50%). Of the six unemployed, three of have not claiming unemployment (they have to wait because of accumulated vacation). The guy cut to part-time, can’t claim anything.
The goverment count would show 2 of 12 unemployed (15%).
Our count shows 6 of 12 unemployed (50%).
Hmmm…
As just one example of what union construction workers are paid (and MUST by law be paid on federal construction projects) the current wage determination by the Department of Labor under the Davis-Bacon Act, for carpenters in the St. Louis area, is $31.27 per hour plus $9.67 fringe benefits, or $40.94 per hour. (Working 40 hours per week, that is $85,000 per year.) Now, who in their right mind thinks that companies and individuals have the willingness or financial ability to pay that kind of money to start new construction projects in the current economy?
Part of the “justification” for such high hourly wages is the understanding that construction workers routinely experience periods between jobs. That’s true, and so a fairly high level of unemployment in that industry is standard (and part of the reason for the high finge benefits). But those periods of unemployment would be greatly reduced — to the benefit of both workers and everyone else in the economy — if their wages were as flexible in the downwards direction during periods of reduced demand, as they are in the upwards direction during boom times.
Gee, I know quite a few unemployed union carperters, painters, brick layers, etc… willing to work for $15 an hour… what am I missing???
The main things that you are missing, Jim, is (1) that the people willing to work for lower wages cannot legally be employed on the public works projects that will be getting the most of the federal “stimulus” money and (2) that they don’t have the same ability as unions to “connect” with non-union contractors who would be eager to get work with private companies and individuals by substantially cutting their bids for non-government contracts.
I’ll concede that union workers making in the range of $30 to $50 per hour are generally more skilled and more productive per hour (when not deliberately foot-dragging over alleged grievances) than non-union workers. Therefore, when laws (specifically, Davis-Bacon) require workers to be hired at the highest rates of pay, the most skilled workers will be hired. But what about the less skilled workers? Wouldn’t most workers and consumers/taxpayers be better off to employ, say, 1000 workers at $25 per hour ($25,000 per hour total cost) rather than 800 workers at $40 per hour ($32,000 per hour total cost plus the cost of supporting 200 unemployed workers)?