Saturday, February 6, 2010

What is the Unemployment Rate?

In the months leading up to President Obama's State of the Union address, unemployment has been steadily increasing. From 7.7% in January 2009, when Obama took office, to 10% in December 2009. Shortly after Obama gave his address, the Department of Labor issued a press release, noting that 20,000 jobs have been lost in January, and yet the unemployment rate has decreased to 9.7%, a reduction of 0.3% from January, which is good news.

However, as I learned from reading an Israeli article (published in Hebrew) and after playing a little bit with the Bureau of Labor Statistics to verify the data, the picture is not that simple.

The Department of Labor apparently has at least two ways of calculating the unemployment rate. The difference between the two depends on who counts as unemployed. the 9.7% figure is, as it turns out, rather conservative. A more comprehensive method, termed U-6, shows that the figures are much bleaker. This is the "Alternative measure of labor underutilization." It includes "Total unemployed, plus all marginally attached workers plus total employed part time". This might be a better indicator, since it includes those who have given up on finding a job and those who work part time, usually because of cutbacks. As can be seen from the chart below, the unemployment rate in January 2010 was actually a whopping 16.5%, less than 1% from the highest rate since WWII (according to the Israeli article). This means that the number of unemployed is not around 15 million, but more like 26 million. However, there's good news too. Even according to this method, we are back to the level of June 2009, after peaking at 17.4% in October 2009.


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