The Bureau of Labor Statistics within the U.S. Department of Labor reported that our national unemployment rate for February was 7.7%. This level is essentially unchanged since last September.
What would you say if I told you that the real unemployment rate is closer to 17% and that it has improved a scant 1.0-1.5% since it peaked during the summer of 2011?
To understand this dramatic discrepancy between the official unemployment rate and reality, we need to start with the Kennedy administration that eliminated discouraged workers from the ranks of the unemployed. Reagan added our volunteer military to the ranks of the employed which also served to reduce the unemployment rate. Finally, Clinton changed the math by eliminating discouraged workers from the overall worker base.
While the official or U-4 unemployment rate for February was 7.7%, half of the 0.6% improvement that has occurred over the last twelve months was due to Americans leaving the work force. What happened was that workers who were out of a job for over a year were no longer considered ‘discouraged’. They were not ‘marginally attached’ to the workforce either. The answer was that they just chose not to ‘participate’ in the American way and stayed at home or camped out under bridges.
Confused? You see, our Labor Department excludes anyone from the unemployment calculations if out of the job market for more than a year.
Now if you looked for a job in the last month, the Labor Department considers you ‘discouraged’…but still excludes you. If you did not look, you are only ‘marginally attached’…and also excluded. If you are still out of work after a year, it’s by choice and you are choosing not to ‘participate’. The good news is that if you reenter the job market later when you actually find a job, you will be recaptured and termed a ‘reentrant’. Where you went during the interim is anyone’s guess.
It is worth noting that if you are working part-time but wanting or needing a full-time gig, you are counted as employed even though it isn’t what you need to get by. Not all countries consider you ‘employed’.
When we add all of these lazy, marginal contributors back into unemployment rates yet leave out Americans who ‘choose’ not to ‘participate’, about 14.4% of all Americans are considered unemployed. Washington DC calls this the U-6 unemployment rate. This is closer to the calculation many industrialized countries use. In California, 17% of all Californians were unemployed using this definition while Riverside County’s rate exceeded 20%.
This number still undercounts the unemployed. You see, under the Obama Administration the ‘participation rate’ has gone from 66% to 63.5%. That means that and additional 2.5% of Americans were excluded primarily due to their inability to find a job for over the last year. This means that the reported 7.7% unemployment rate is actually somewhere between 9.0% and 10.2% while the U-6 unemployment rate is hovering near 17%.
What makes ‘participation’ interesting is that the Bureau of Labor Statistics state that unemployment peaked at 10.1% nationally in October of 2009 and has been improving ever since. In truth, if you were to have kept the participation rate stable at 66% over the last five years, the unemployment rate did not peak until the summer of 2011 at nearly 12%. Since the peak in actual unemployment at approximately 18.5%, things have improved to only 17%…and that recovery has stalled over the last five months.
Want some good news? Recent stock market highs indicate that Wall Street feels a robust recovery is coming. Let’s hope that Wall Street’s prognostication skills are more accurate than Washington DC’s reporting skills.