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The Unemployment Rate In The United States Is Manipulated By Republicans and Democrats

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Because unemployment statistics can be such powerful rhetorical weapons in a policy debate, politicians and analysts have been cherry-picking numbers to support their various arguments. We increasingly hear, for instance, about the "real" unemployment rate — a number that includes people who have given up searching for work or who are "underemployed," and that stands at nearly 17%. Wow. See how the shock value can help news ratings.

So should "real" unemployment be considered a more useful economic indicator than the standard unemployment rate? Just what do these figures mean? What do they really count, and how reliable are they? As the economy is sure to take center stage in the months leading up to this fall's elections, we would benefit from a better understanding of these statistics so we can have a more realistic appraisal of the economy.

Who Makes Up the “Labor Force”?

The basic unemployment rate today measures the number of unemployed workers as a percentage of the total civilian labor force. The labor force is defined as those who unemploymentreported that they were employed in a given month plus those who did not work in the week when surveyed (but who did actively search for a job at some point in the previous four weeks and could begin work if offered a job).

Some economists argue that this definition overstates unemployment, because its criteria for "actively searching for a job" are vague at best. These criteria count, for instance, a single conversation with a friend asking if he knows of any job openings, or any time at all spent editing a résumé, as actively looking for work. No distinction is drawn between someone who visits dozens of potential employers and follows up with phone calls and someone who changes the font on a cover letter and never sends it anywhere.

Others, meanwhile, worry that the definition actually understates unemployment. The criteria for being "unemployed" exclude people who might want to work but who have not been actively searching in the past four weeks. These are called “discouraged workers" — people who are neither in the labor force nor looking for a job because they will not become employed for various reasons. Perhaps they feel that they are too old or under qualified, or are unable to search because of, say, health problems or family commitments. The basic definition also excludes people who are underemployed, those who want to work full time, but can find only a part-time job.

Defining Unemployment Rates

In an effort to respond to these concerns, the Bureau of Labor Statistics publishes a range of unemployment measures in its monthly reports. U-3 is the familiar official unemployment rate, measuring the number of people who are out of work but actively looking for jobs as a percentage of the total labor force. It is by far the most commonly used and cited labor statistic in America, and remains the essential benchmark for professionals and the general public alike. In June, the U-3 was 9.5%.

The U-4 rate includes the unemployed workers counted in the official U-3 rate, plus so-called “discouraged workers”.  The discouraged-worker category is notoriously subjective, and efforts to measure it have sparked a great deal of controversy among labor economists over the years. In this June's jobs report, the U-4 rate was 11.0%.

U-5 is defined as the U-3 unemployment plus all marginally attached workers — those who would like a job and would take one if offered but have not been looking for work recently enough (within the last 4 weeks) to be counted in the U-3 figure. In June, the U-5 was also 11.0%

U-6 includes all marginally attached workers as well as workers who are employed part-time for economic reasons (i.e. workers who would prefer full-time work, but have not been able to find it). U-6 is the broadest measure of unemployment the BLS reports. In June, it was 16.5%

The "underemployment rate" has become an increasingly popular statistic in political debates about the economy, as it provides a startlingly high figure that can be cited as reliable evidence of trouble in the labor market.

The Dangers of using the U-4, U-5, and U-6

The rationale for using the alternative measures of unemployment (especially those that include discouraged, marginally attached, and underemployed worker) is that they offer more complete or accurate measures of the labor market. However, it is inherently difficult to know if this is really the case — since both the definitions involved, and the answers provided to government surveys about attitudes and expectations, are extremely subjective.

Furthermore, research indicates that the “discouraged workers” and the “marginally attached workers” are far more likely to stop wanting jobs than to actually find work. This quality helps to explain why the alternative unemployment figures have tended to remain quite high even in periods when the official unemployment rate is very low or even when the economy seems to improve.

So, based on what we can surmise from the available data, the assumptions of a clearer image of the economy made by the advocates of these alternative rates are probably not justified.

Political Manipulations

Some reporters and pundits use the alternative measures of unemployment to make the labor-market situation seem even more desperate than it really is. "Don't be fooled by the fact that the official U.S. unemployment rate in February remained unchanged from January at 9.7 percent," the Washington Post's Frank Ahrens wrote in March. "The truer measure of unemployment in the United States rose from 16.5 percent in January to 16.8 percent in February.

Both liberals and conservatives are guilty of using alternative measures of unemployment for their own agendas. Conservatives love using such alternative measures of unemployment to reinforce their concerns with President Obama’s policies. House Minority Whip Eric Cantor made this point in a USA Today op-ed, saying,” while official unemployment hovers around 10%, real unemployment is frighteningly higher at nearly 17%."

Liberals are just as guilty, occasionally touting the alternative rates as evidence that the government needs to adopt more aggressive social policies or stimulus spending to combat unemployment. These arguments, however, have generally been muted over the past two years, since Democrats in Washington are not inclined to spotlight grim jobs numbers on President Obama’s watch.

Broader definitions of unemployment rates are not helpful to create the most accurate possible picture of the state the economy. The standard unemployment rate, despite all its flaws, is still the best indicator we have. Just like the case of Coca-Cola, sometimes the classic is still the best.