The U-6 Unemployment Rate
Critics have said that the lack of inclusion of discouraged workers (those no longer looking for work) as well as underutilized employees (i.e. part time, or being forced to take jobs below their abilities) understates the true unemployment rate. Considering a more broad-based universe, the Bureau of Labor Statistics characterizes this subset as U-6, with one codicil: only short-term discouraged workers are counted. Individuals who are no longer looking and have dropped out of the labor pool altogether due to the inability to find a job over the long term are not counted in this statistic.
Using U-6 data, the unemployment rate would be just under 15% and edging downward in a similar linear fashion to the U-3 rate. It is likely this measurement the Romney campaign continues to cite when stating that 23 million Americans remain out of work. Counting long-term discouraged, the trend line is even more ominous: 23% and still climbing.
Unemployment: The Meaning Behind the Numbers
During the previous two recessions (1990-91 and 2001-02), noteworthy to the calculations was that the gross number of employed individuals flattened, but did not significantly shrink. The ever-increasing labor pool caused the unemployment statistics (whether U-3 or the far less publicized U-6) to increase. During the far more devastating 2007-09 recession, however, not only did the labor force continue upward, but the actual total of employed individuals fell dramatically, as employers shed payroll en masse in an effort to combat declining sales and profitability. As a result, the number of unemployed workers essentially doubled between 2007 and 2010, a far more significant problem than experienced during previous recessions. Like the glut of houses that depressed values nationwide for years, the present oversupply of labor has likewise kept the unemployment rate at a stubbornly-high number since the beginning of the financial crisis. Early on, this factor led economists to predict a U-shaped recovery instead of the typical V-shaped one.
The marginal recovery has become political football during this election season, and the sudden improvement in the unemployment rate has already paid benefits to the incumbent president. However, unemployment figures can change significantly from month to month, and thus short-term improvements cannot be fully relied upon. Furthermore, another threat looms on the horizon that could upend the progress made since 2009: the oft-cited “fiscal cliff.’