What's The Real Unemployment Rate?

The national unemployment rate continues to improve, but don’t tell that to people who are jobless and looking for work.

Many of today’s unemployed, particularly those who are younger, have a more negative view of the labor market.

Who’s right?

The official jobless rate in the nation peaked at 10 percent in October 2009, three months after the recovery began.

Over the past five years, it dropped considerably to 5.7 percent in January 2015.

Despite the large drop in the rate, there still is debate about the health of the U.S. labor market as some argue much of the decline is a result of people leaving the labor force rather than labor market improving.

The Labor Department publishes an alternative jobless rate – called the U6 unemployment rate – that includes people without work looking for full-time employment as well as those marginally attached to the labor force and those working part-time who would prefer to work full time.

The U6 unemployment rate remains high by historical standards. It stood at 11.3 percent in January 2015 — down from an all-time high of 17.1 percent in April 2010.

The Labor Department started collecting these statistics in 1994 and before the last national recession, the previous high of 11.8 percent was recorded in January 1994.

Based on an unemployment rate that includes the underemployed and discouraged workers, the labor market still has much room for improvement.

In addition to not including them, the official U.S. unemployment rate overstates the improvement in labor market conditions when the drop has been caused by those leaving the workforce.

The labor force participation rate, which represent the share of the civilian noninstitutional population that is in the labor force, stood at 66 percent in December 2007, the first month of the national recession.

As of January 2015, the labor force participation rate fell to 62.9 percent, hitting a 36-year low in the

prior month.

While some have argued that the drop in labor force participation has been driven by demographic factors (such as baby boomers retiring), non-participation due to disability and increased school enrollment, among other factors, also have contributed to this decline.

Partly driving the decline are those in the 16-to-24-year age category whose labor force participation rate has decreased 7.3 percentage points from January 2003 to January 2015.

The labor force participation rate for those 55 years old and older has increased 4.5 percentage points over the same period, dispelling the argument that the drop is driven by retirees.

The bottom line is that five years into the current expansion, the labor market remains weaker than the official unemployment rate suggests.

(This article first ran in the Richmond Times Dispatch on March 2, 2015)

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