We all know that the unemployment rate is a political football. The political party who is in power praises itself when this number goes down, and the political party who is out of power condemns the current administration when it goes up. Both parties have at various times accused the other of manipulating the unemployment rate to make it appear better than it actually is. Many of us out here in the real world of work and jobs may wonder if this is true, and may even subscribe to so-called “conspiracy theories” about manipulation of the unemployment rate. The real problem is that the way our national employment data is measured and reported does not provide sufficient information about job market deficiencies. Whether this is by deliberate intention or by simple neglect is another question.
In the United States, national labor data are primarily maintained by the U.S. Bureau of Labor Statistics (BLS). BLS derives its measure of employment and unemployment using the Current Population Survey (CPS) and the Current Employment Status (Payroll) Survey that are conducted monthly by the United States Census Bureau. The CPS covers a rotating sampling of 60,000 households (approximately 110,000 individuals) and measures unemployment based on the United Nations International Labor Organization (ILO) definition. The Payroll Survey covers a sampling of 160,000 businesses and government agencies that represent 400,000 individual employers. Theses two sources have different classification criteria, and usually produce differing results, which must be reconciled before the “official” unemployment rate is determined.
In earlier days of national workforce data collection, the measurements were somewhat bare and simplistic. Citizens were merely asked whether they had a “gainful occupation,” which was defined as any usual profession, occupation, or trade that produced income. That is, if someone had painting skills and was occasionally able to earn income from this, he was considered to be gainfully employed whether or not he was engaged in painting work at the time of the survey.
When the Great Depression created a demand for “work relief” programs, U.S. Census surveys were revised in 1937. The purpose of these revisions was to determine whether a worker qualified for taxpayer-funded relief. The new survey asked workers whether they currently had a job or were actively looking for work, and these questions continue to form the basis of unemployment measures today. In calculating the unemployment rate (expressed as a percentage of the total civilian labor force), the U.S. Bureau of Labor Statistics (BLS) uses the following definitions: Anyone who has a job (any job) is “employed.” Anyone who does not have a job but is willing and available to work is unemployed. People who are neither employed nor unemployed are not counted in the total labor force. Persons who work only a few hours per week, or work without pay for 15 or more hours per week in a family-owned business are counted as “employed.”
In the early 1990s, some studies found that a sizeable number of workers who wanted full-time jobs were employed in part-time jobs, and these “involuntary part-timers” virtually tripled between 1970 and 1990. In 1994, the U.S. Census Bureau updated the CPS because of concerns that current measures were unreliable and likely underestimating the extent of labor underutilization. BLS now has developed a six-level measure of labor underutilization, which is expressed as a percentage of the civilian labor force.
U-1 is the number of persons unemployed 15 weeks or longer. U-2 consists of persons who have just lost jobs as well as persons who have completed temporary assignments. U-3 is a combination of U-1 and U-2 (there is some overlap), and represents the “total unemployed,” or the federal official unemployment rate. U-4 is the total unemployed (U-3) plus “discouraged workers,” which BLS defines as “having a job market related reason [as opposed to a personal reason such as illness or caring for a family member] for not currently looking for work.” U-5 is comprised of the unemployed (U-3), plus discouraged workers (U-4), plus the “marginally attached,” which BLS defines as “neither working nor looking for work but indicate they want and are available for a job and have looked for work sometime in the past 12 months.” U-6 includes all persons included in U-5 plus all persons employed part-time for economic reasons (the involuntary part-timers).
In spite of these enhanced measures, the “official” unemployment rate is still reported at the U-3 level, which can underreport labor underutilization according to the U-6 measure by as much as 200%. Moreover, these new measures do not take into account other forms of labor disutility that is recognized in the academic literature. One example of this is when persons are employed in a position that does not require their highest level of education, training, and experience. An example of this would be a college graduate working as a restaurant wait-staff, or a laid-off department manager with decades of experience working in a convenience store. A recent report that was quietly released by the Federal Reserve Bank of New York found that this type of (unmeasured) skill and credential underemployment has remained at a fairly uniform rate of 33% over the past two decades. Then there is the issue of wage underemployment, or full time work that does not pay enough to keep a person or family out of poverty. Although the number of minimum wage jobs is documented, it is not correlated with measures of un- and underemployment.
In summary, the official unemployment measures do not tell us the whole story about the deficiencies of the U.S. job market. But this is not because anyone is manipulating them. They are designed this way.
