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.