What Is the Real Unemployment Rate?

Summary

The video script discusses the complexities of interpreting unemployment rates in the US, highlighting how different data sets lead to varying conclusions in political discourse. It clarifies the distinction between official unemployment rates (U3) and broader measures like U6, which includes part-time workers seeking full-time employment. The script emphasizes the importance of accurate data interpretation for meaningful discussions on economic recovery and the need for good jobs, noting that while unemployment is low, median household incomes have yet to reach pre-recession levels.

Takeaways

• 📊 The official U.S. unemployment rate reported by the Bureau of Labor Statistics for December was 4.7%, which is close to the lowest in nearly 50 years.
• 🔢 There is confusion in political discourse due to different interpretations of unemployment rates, such as 6%, 9.2%, 20%, or even 38%, based on various data sets.
• 👥 The 38% figure refers to the labor force participation rate, which includes all Americans over 16 who are working or actively seeking work, and has declined over the last 20 years.
• 📉 The decline in labor force participation is largely due to an aging population and a higher percentage of retirees, but also includes more people choosing full-time parenting or further education.
• 🤔 A significant number of Americans not in the workforce, 90 out of 95 million, say they do not want a job currently, but 5 million do, indicating potential for workforce re-entry with the right opportunities.
• 👴 The aging population will naturally lead to a continued decline in the labor force participation rate, regardless of economic conditions.
• 📈 The U.S. Census Bureau releases six unemployment rates each month, but for international comparison, the U3 rate is most commonly used, which is currently at 4.7%.
• 😟 The U4, U5, and U6 rates include discouraged workers, marginally attached workers, and part-time workers who prefer full-time employment, respectively, with U6 being the highest at 9.2%.
• 🌍 Comparing U3 unemployment rates with other countries provides a useful international benchmark, showing varying economic conditions worldwide.
• 📉 The U6 rate helps to understand labor market 'slack' and potential for job growth, with a slightly higher gap between U3 and U6 post-2009 recession indicating more room for growth.
• 💼 While the unemployment rate is lower than the post-World War Two average, median household incomes are still recovering and may not have reached 2007 levels yet.

Q & A

What was the unemployment rate in the US in December according to the Bureau of Labor Statistics?

The unemployment rate in the US in December was 4.7%, which is close to the lowest it's been in nine years and fairly close to the lowest since the early 1970s.

Why do some people claim that the real unemployment rate in the US is much higher than the official rate?

Some people claim higher unemployment rates because they are considering broader measures of unemployment, such as the labor force participation rate or including discouraged workers, marginally attached workers, and those who work part-time but want full-time employment.

What is the labor force participation rate and why has it declined over the last 20 years?

The labor force participation rate measures how many Americans over the age of 16 are either working or actively looking for work. It has declined from over 67% to under 63% due to factors such as an aging population, more people choosing to be full-time parents, and an increase in students in professional and graduate schools.

How does the aging population affect the labor force participation rate?

As the population ages, a higher percentage of individuals are retired, which contributes to a decline in the labor force participation rate.

What are the two biggest factors contributing to the decline in labor force participation rates among people aged 25 to 54?

The two biggest factors are more people choosing to be full-time parents and an increase in the number of students in professional and graduate schools.

How many Americans not in the workforce say they 'do not want a job now' according to the most recent data?

According to the most recent data, 90 out of 95 million Americans not in the workforce say they 'do not want a job now'.

What is the difference between U3 and U6 unemployment rates?

U3, the official unemployment rate, includes all adult civilians without work who have looked for a job within the last four weeks. U6 includes U3 plus discouraged workers, marginally attached workers, and part-time workers who want full-time employment, providing a broader measure of unemployment.

Why is the U3 unemployment rate important for international comparisons?

The U3 unemployment rate is important for international comparisons because it is closely aligned with international standards, allowing for a more accurate comparison of unemployment rates between different countries.

What does the difference between U3 and U6 indicate about the labor market?

The difference between U3 and U6 indicates the amount of 'slack' in the labor market, or how much room there is for job growth. A higher difference may suggest more room for job growth than the U3 rate alone would suggest.

How does the script suggest we should approach discussions about unemployment rates?

The script suggests that we should agree on the facts and measures of unemployment before discussing their implications, avoiding the mixing of different unemployment measures in the same conversation.

What is the current state of median household incomes in the US according to the script?

Median household incomes are likely still lower than they were in 2007, indicating that the recovery from the recession may still be unfinished.

Outlines

00:00

📊 Understanding US Unemployment Rates

The paragraph discusses the complexities of interpreting unemployment rates in the US. It begins by presenting the official unemployment rate of 4.7%, then delves into the various interpretations of the 'real' unemployment rate, which range from 6% to as high as 38%. The 38% figure is explained as the labor force participation rate, showing the percentage of Americans either working or actively seeking employment. The decline in this rate is attributed to an aging population and other factors such as increased full-time parenting and professional education. The script clarifies that not all of this decline is due to the economy. It then explains different measures of unemployment, including U3, U4, U5, and U6, each capturing different aspects of the workforce and job market. The importance of using the correct measure for accurate comparisons and discussions is emphasized, with a note on the current state of US employment and median household incomes.

05:02

🎬 Personal Reflections and Engagement

In this paragraph, the speaker shifts from the topic of unemployment to personal matters. They express their intention to watch the movie 'Hidden Figures' for a second time, indicating their enjoyment of the film. They also invite viewers to share their favorite Oscar-contending movies, mentioning 'Hidden Figures' and 'Moonlight' as their own favorites. The speaker acknowledges Hank for his support over the years and signs off with a promise to return on Friday, creating a sense of community and ongoing conversation with the audience.

Keywords

💡Unemployment Rate

The unemployment rate is a percentage that represents the number of unemployed individuals in the labor force who are actively seeking employment but are currently without a job. In the video, it's discussed as a key economic indicator, with the U.S. Bureau of Labor Statistics reporting a 4.7% rate in December, which is close to historical lows. The script also addresses the controversy over varying interpretations of the 'real' unemployment rate, highlighting the complexity of economic data.

💡Labor Force Participation Rate

This rate measures the proportion of the population that is either employed or actively seeking employment. The script notes a decline in this rate over the past 20 years, attributing the drop to an aging population and other factors such as more individuals choosing to be full-time parents or pursuing higher education. It is a critical concept in the video as it influences perceptions of the unemployment situation.

💡Discouraged Workers

Discouraged workers are individuals who are not currently looking for work because they believe no jobs are available to them. The term is used in the context of U4 unemployment rate, which includes these workers in addition to those actively seeking employment. The script mentions this group to illustrate the broader challenges faced by the labor market beyond just the headline unemployment figures.

💡Marginally Attached Workers

Marginally attached workers are those who desire and are available for work but have not actively sought employment recently due to reasons such as family responsibilities or education. The video uses this term in relation to U5 unemployment rate, which includes this group to provide a more comprehensive picture of underemployment in the economy.

💡Part-time for Economic Reasons

This term refers to individuals who are working part-time but would prefer to work full-time if such opportunities were available. It is relevant to the U6 unemployment rate, which includes these workers to reflect the extent of underutilization of labor. The video uses this concept to discuss the 'slack' in the labor market and the potential for job growth.

💡Full Employment

Full employment is a state where nearly all who are able and willing to work are employed. The script mentions that while the U.S. unemployment rate is lower than the post-World War Two average, it is still somewhat higher than what would be considered full employment, indicating that there is room for further improvement in the job market.

💡Median Household Income

Median household income is the middle value of all incomes in a population, reflecting the standard of living. The video discusses how median household incomes are likely still lower than pre-recession levels in 2007, suggesting that while employment rates are improving, economic recovery may not be fully realized for all households.

💡Great Recession

The Great Recession refers to a severe worldwide economic downturn that took place mostly during 2007–2009. The script uses this term to provide a historical context for the decline in labor force participation rates and to compare current unemployment rates with those during the recession's peak.

💡Economic Recovery

Economic recovery refers to the period of improvement in economic activity following a recession. The video discusses the ongoing nature of the recovery, noting that while employment rates are improving, median household incomes have not yet reached pre-recession levels, indicating that the recovery may still have some way to go.

💡Political Discourse

Political discourse in this context refers to the discussion and debate surrounding political issues, including economic data interpretation. The video script highlights the issue of differing conclusions drawn from the same data due to political bias or differing perspectives, emphasizing the need for a common understanding of facts.

💡Hidden Figures

Hidden Figures is a movie mentioned in the script that the speaker enjoyed and plans to watch again. While not a key economic term, it serves as a cultural reference and a personal anecdote from the speaker, adding a personal touch to the otherwise data-driven discussion.

Highlights

In December, the US unemployment rate was reported at 4.7%, close to the lowest in nine years and near the lowest since the early 1970s.

There is debate over the 'real' unemployment rate, with figures ranging from 6% to 38%, illustrating the challenge of reaching consensus in political discourse based on different data sets.

The 38% figure refers to the labor force participation rate, which measures Americans working or seeking work, and has declined over the last 20 years.

The decline in labor force participation is largely due to an aging population and an increase in full-time parents and professional/graduate students.

Approximately 90 of 95 million Americans not in the workforce do not want a job, while the remaining 5 million represent a significant portion of the labor force.

Some decline in labor participation may be due to lack of job opportunities, with people retiring earlier or attending graduate school as a result.

The labor force participation rate is expected to continue declining due to an aging population, regardless of economic conditions.

The U.S. Census Bureau surveys 60,000 households monthly to determine unemployment rates, releasing six different rates, with four being most relevant.

U3, the official unemployment rate, includes all adult civilians who have looked for work in the last four weeks and is currently at 4.7%.

U4 unemployment rate adds discouraged workers and raises the rate to 5%, while U5 includes marginally attached workers, increasing the rate to 5.7%.

U6 unemployment rate includes part-time workers who prefer full-time work, bringing the rate up to 9.2%.

The choice of unemployment rate depends on the aspect of employment one wishes to measure, with U3 aligning with international standards and U6 reflecting labor market slack.

Comparing different unemployment measures can lead to inaccurate conclusions about job growth and economic recovery.

Unemployment rates have generally decreased since World War Two, but there is still room for improvement to reach full employment.

Median household incomes are likely still lower than pre-2007 levels, indicating that the economic recovery from the recession may not be complete.

Agreeing on factual data is crucial for meaningful discussions on continuing or expanding economic recovery.

The speaker apologizes for the American focus of the video and invites non-American viewers to suggest topics for future coverage.

The speaker shares personal enjoyment of the movie 'Hidden Figures' and invites viewers to share their favorite Oscar-contending films.

The speaker expresses gratitude to Hank for employment over the years and looks forward to future discussions.

Transcripts

Good morning, Hank. It's Tuesday!

So last week the Bureau of Labor Statistics

announced that in the US in December the unemployment rate was 4.7%,

close to the lowest it's been in nine years

and fairly close to the lowest it's been since the early 1970s

but you may have also heard that the real unemployment rate in the US

is 6% or 9.2% or 20% or even 38%

and to me this seems like one example among many

of how in our current political discourse different people

are reaching vastly different conclusions because they're all looking at different sets of data

and until we agree on what the facts are

we can't meaningfully discuss what they mean.

Let's start with that 38% number.

This refers to the labor force participation rate,

which is a measure of how many Americans over the age of 18 (correction: 16) are either

working or actively looking for work.

Now, as you can see this rate has declined quite a bit over the last 20 years,

from over 67% to under 63%

but by far the biggest reason for this decline

is that Americans are getting older which means that

a higher percentage of them have retired.

But even if you look at the labor force participation rates of people

between the ages of 25 and 54 that rate has also declined

about 1.5% since the great recession and about 3.5% since its height in the late 1990s.

What's the deal there? Well, the two biggest factors seem to be

more people choosing to be full-time parents,

and more students in professional and graduate schools.

According to the most recent data

90 of the 95 million Americans not in the workforce say they 'do not want a job now,'

but the remaining five million people of course it a LOT of people

like it's 3% of the total US labor force

and some portion of declining labor participation

is probably due to lack of job opportunities. People might have retired earlier

than they otherwise would've because they lost a job,

or they might be in graduate school, but

they could be tempted into the workforce for the right opportunity, etc.

Now, smart people disagree about how much of the declining labor participation

is attributable to the economy but on its own

that statistic does not tell us much about unemployment.

For one thing, the labor force participation rate will

continue to decline as the population continues to age

whether the economy is good or bad.

But also if you're gonna claim that the real

US unemployment rate is 38%

that means back in 1967 it was 41%

and that the lowest the U.S. unemployment rate has ever been is 33% in 2000.

So let's move on to actual measures of unemployment.

Every month, the U.S. Census Bureau surveys 60,000 households to find out how many people are out of work,

and then on the first Friday of every month they release six different unemployment rates

because nothing is ever easy, but for our purposes only four of them matter.

First you have U3, which is the official unemployment number.

It includes all adult civilians who are without work and have looked for a job within the last four weeks.

That's the number that is currently 4.7%

Then you have U4, which adds in so-called discouraged workers: people who are without jobs

but have stopped looking for work because they don't believe there are any jobs they can get.

Adding them in raises the current unemployment rate to 5%,

and then U5 adds in so-called marginally attached workers

who are people who want to be in the work force but haven't recently sought jobs

because they are taking care of family responsibilities or taking classes,

and they bring the unemployment rate up to 5.7%.

And then, lastly, U6 includes people who work part time but want to be working full time.

Including them brings the current unemployment rate up to 9.2%.

So which of these is the real unemployment rate?

Well, it depends on what you're trying to measure.

The U3 number is useful for one thing because it's closely aligned with international standards,

which allows us to compare our unemployment rate to that of other countries.

Like in Brazil, a similar measure has the unemployment rate at 12%;

in Germany it's 4.1%; in Spain it's 19%.

But the U6 number is also useful because it helps us to understand how much so-called 'slack' there is

in the labor market. That is, how much room there is room there is for job growth

As you can see U3 and U6 basically track together

but there are slight differences, like the distance between U3 and U6 is currently slightly higher

than it was before the 2009 recession, indicating that there may be more room for job growth than the U3 number would have us conclude.

The most important thing, though, is that when talking about our unemployment rate,

we can't compare oranges with grapefruits, and unfortunately

that's happening a lot in our political conversations right now.

You might hear for instance that at the height of the recession

unemployment was 10%, and now it's only down to 9.2%,

but that's mixing unemployment measures.

If the unemployment rate is currently 9.2%, it was 17% at the height of the recession.

And if it was 10% at the recession's peak, it is currently 4.7%.

By either measure, the unemployment in the United States is lower than

the average has been since World War Two but it's still somewhat higher than full employment.

But of course, that's only part of the picture because people don't just need jobs. They need good ones.

On that front, the recovery from the recession is probably still unfinished.

Median household incomes are likely still lower than they were in 2007, although we don't have the final data for 2016 yet.

So in summary, no matter how you measure it, US employment is low

but could be lower, and median household income is rising, but not yet to all-time highs.

And if we could agree on these facts,

maybe we could move forward with the discussion about how to continue

or even expand this economic recovery.

Okay, non-American nerdfighters, I am sorry that this was such an American video,

but we're having just a smidge of a political discourse crisis over here.

Let me know in comments what non-American topics I could cover next week to make it up to you.

Okay Hank, I'm off to go see the movie for Hidden Figures for a second time

because I liked it that much. Maybe also let me know in comments what your favorite Oscar-contending movies are

my favorites are Hidden Figures and Moonlight.

Hank, thanks for keeping me employed all these years.

I'll see you on Friday.