The real unemployment rate, Part 2

After my post last week on “The real unemployment rate” a reader posted a comment asking how this compares to past years.

It’s a good question, so here you go.

While the report I cited didn’t look at that, the government’s numbers can be helpful here. One of the problems with the unemployment rate that is usually widely cited is that it delivers an incomplete picture. It doesn’t include those who are underemployed, who haven’t looked for a job in the last four weeks (they are classified as “marginally attached”) and discouraged workers who have given up looking for a job altogether.

However, besides the traditional unemployment rate (U-3 in government parlance), the Bureau of Labor Statistics also reports U-6, which is the U-3, plus those that are marginally attached, underemployed or discouraged. In other words, the U-6 includes (almost) everybody who wants a full-time job but doesn’t have one.

In November, the U-3 was at 5.0 percent. The U-6 was 9.6 percent. Historically, the U-3 has been somewhere between 50 to 60 percent of the U-6 since the BLS began measuring it in 1994, so this is the typical range. But let’s take a look at some other years to see how this compares to the past:

  • In January 1994, the first month U-6 was measured, U-3 was 6.6 percent vs. U-6 of 11.8 percent
  • In April 2000, unemployment dropped to a modern low of 3.8 percent, while U-6 was 6.9 percent.
  • During the early 2000s recession, U-3 peaked at 6.3 percent in June 2003. That same month, U-6 was 10.3 percent.
  • In February 2008, U-3 was at 4.9 percent, the last time it dropped below 5 percent. U-6 was 9.0 percent.
  • During the Great Recession, unemployment peaked in October 2009 at 10.0 percent. At that time, U-6 was at 17.1 percent.

So on a ratio basis, today’s numbers are not that far off and in real terms are better than many others historically. But the gap does appear to have gotten a little larger than in the past. Consider:

  • Since the 2009 peak, U-3 has dropped by 50 percent, while U-6 has dropped 43.9 percent.
  • In 1994, U-3 was 55.9 percent of U-6. As of November, it was 52.1 percent.
  • In 2000, at peak employment, U-3 was 55.1 percent of U-6.

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