The headline unemployment number of 8.1% for August fell by 0.2% because fewer people were looking for jobs. This pointed out how useless this statistic is to knowing the true state of unemployment in the United States.   To understand the real unemployment rate, we need to get behind that number.

A bad sign was that the “labor participation rate” fell to 63.8% in August – the lowest level in over 30 years.  This means that only 16 out of 25 people are looking for work.  Inside of this number, the male labor force fell to 69.8%, the lowest number on record.  Also excluded from the report were the “self-employed” who might not be earning income and therefore not counted as unemployed.  In the Coachella Valley, that is a significant number given the percentage of residents involved in real estate sales or construction as well as undocumented migrant workers.

While the government touted job growth of 96,000, behind that number Labor Statistics showed that 119,000 fewer people had jobs.  The explanation was that those 119,000 people chose not to work for various reasons such as early retirement.  Interestingly, 2.2 million Americans have dropped out of the workforce this year – 1.6 million due to retirement, in many cases earlier than they wanted, with another 600,000 for other reasons such as discouragement.  The 600,000 number reflects deeper problems in the economy.

In order to figure out the real unemployment rate, we need to stabilize the workforce participation level at 66% as was the case before the Great Recession hit.  Using that one adjustment, the headline unemployment rate was unchanged at 10.6% as compared to July.  This is significantly higher than the 8.1% reported in the press.

This still does not reflect the real unemployment rate as it excludes “discouraged workers”. “Discouraged workers” are simply people who have been unemployed for more than four weeks but less than a year.  Adding back these people shows that the unemployment rate improved by 0.2% to 11.2% in August.

“Marginally attached” workers are also excluded.  These are people who want to work but have been unable to find work for over a month.  Surely, they should be included in the unemployment rate.  Including these people increased the unemployment rate to 12.2%, a 0.1% improvement over July.  These common sense adjustments show that real unemployment is 50% higher than that being reported.  One in eight people who want to work cannot find work.

Lastly, we should add back people who want a full-time job but cannot find one and as such take part-time jobs.  Including these workers increases the unemployment rate to 17.1%, a 0.4% improvement over July.   Nevertheless, more than one in six people is looking for work.

This levels of unemployment means that we at the same levels as August 2009.  Worth noting, while unemployment peaked in August 2011, it has been relatively unimproved over the last three years with wages decreasing for those able to find work.

The real question is whether the foundation is in place for economic recovery as job growth lags an improving economy.  While things appear to have stabilized for businesses, by most accounts, we have a significant way to go before we have a period of sustained recovery and by extension, improved job prospects.  High energy and healthcare costs continue to present a substantial risk to business while workers need to retool their skill sets while being prepared to take lower paying jobs.  The job market for many is no longer local or national in nature but international – a daunting challenge to workers and employers alike.

As for the real unemployment rate, it is now more than twice the level of that reported in the press and touted by our elected leaders.  The real number is not 8.1% but over 17.1% nationally, more than 20% for the State and over 25% in the Coachella Valley.

Comments are closed.