The Official U.S Unemployment Rate
“People are classified as Unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.” -bls.gov
Thus, there are three conditions that must be true in order to meet the official definition of Unemployed. If you haven’t actively searched for work in the last four weeks (maybe you’ve been in school or maybe you’ve been looking online but haven’t applied for a job yet) you don’t count as Unemployed according to the official definition. You don’t get counted as employed, obviously, either. You actually don’t get counted at all.
- This is very good. Regardless of the relevance of the number, a low Unemployment Rate is better than a high Unemployment Rate.
- The Unemployment Rate has been declining for years and the trend looks like it will continue. Even if the number is not representative of the total Unemployed population, the steadily declining trend is a good thing.
Labor Force Participation Rate
A much better indicator of the total portion of the population that is actually unemployed is the Labor Force Participation Rate.
According to the BLS, the Labor Force Participation Rate defines the “Labor Force” as everyone eligible to work (all people over the age of 16 who are not in jail, in a nursing home, in some other institution, or in the Armed Services) and defines “Employed” as anyone who worked in the last week.
Anyone in the Labor Force who is not Employed is Unemployed, simple.
So, 37% of the population could get a job but they can’t find a job or can’t get someone to give them a job because maybe they aren’t qualified enough.
That’s 37% of the population unemployed versus the 3.8% the government has been blabbing about for months now.
And before you go there, don’t. I like our government. I think for the most part we all do what we can to try and make things work. It’s hard, I get that.
What I don’t understand is the 33% difference between the “Unemployment Rate” and the percentage of people who are unemployed. Like, what’s the point of the Unemployment Rate if it isn’t going to tell us within some degree of accuracy how many people are looking for work?
The most important initiative that we can undertake is to prevent people from getting to month 7 of unemployment.
On a brighter note, the chart produced (below) by the Bureau of Labor Statistics does show that the Labor Force Participation Rate, which I deem to be the real indicator of unemployment, has been recovering since the 2008 financial market crash. As my friend Joe Psotka helped me analyze, the red line on this chart depicts that the % of the population that is employed- so if it goes down, that’s not good. When goes up, more people are employed.
Duration of Unemployment
Another statistic I find wildly fascinating is the Duration of Unemployment stat that details how long it takes an unemployed person to find a job.
The Bureau of Labor Statistics breaks these time periods into 4 groups:
- less than 5 weeks
- 5 weeks — 2 months (14 weeks)
- 3 months (15 weeks) — 6 months (26 weeks)
- 7 months (27 weeks) +
The following is a chart provided by the Bureau of Labor Statistics that depicts the trends over time for the duration of unemployment:
The above chart basically tells the following story:
As of February 2019, approximately:
- 2.5 million people are getting back to work after 5 weeks of job searching
- 2 million people are finding a job within 5–14 weeks of looking for a job
- 1.5 million people are out of work for longer than 7 months
- 1 million people find a job between 3 and 6 months of searching for one
The main concern I have here is that there are more people out of work for longer than 7 months than there are for 3–6 months. This means that if you don’t find a job within 3–6 months, there is a good chance you won’t find one at all. Think about what happens when you’re in month 7 of a job search. The chances are slim that you feel encouraged to keep looking for a job. You probably have low self-esteem, you‘re worn out, and you’re likely broke.
Month 7 seems to me like the month of no return. To me, it feels like the most important initiative that we can undertake as a nation is to prevent people from getting to month 7 of unemployment.
The main lessons I learned, and what I hope I’ve been able to pass on here with this article, is that sometimes a nice sounding number reported by any agency whether it’s the government, a news source, or a media outlet, is so far from the actual truth that it might as well be completely made up.
Definitions are boring, but they matter hugely in some cases. Other statistics, like the Labor Force Participation Rate or the Duration of Unemployment Rate matter way more in drawing accurate conclusions about the actual state of affairs in any given circumstance. If you’re interested in knowing the truth about something and making informed, educated decisions, it’ s worth doing the extra hour or two of research to learn about the forces shaping the system.
Potential Solution
I am not a labor market expert nor am I an economist (clearly) but I can think of ways that might help bridge the unemployment gap- or at the very least keep people from getting to the 7-month unemployment mark.
Nudging is one of my favorite concepts. I like the Nudge approach to solving problems because putting a Nudge in place is usually simple, low cost, easy to implement, and effective. This means that any government or non-profit can do it because they have virtually no excuse not to.
What if job boards reached out to specific candidates every Monday and Thursday at 2 PM, instead of waiting for people to find them?
This is an example of a simple, low cost, yet effective Nudge that would get “hopelessly” unemployed people back “in the game.” They would feel sought after, valuable, there is little work involved, and with “one-click applications” they can be seen as actively applying for jobs and thus be counted in the official Unemployment Rate- which will help make that number more honest.
Gary Reber Comments:
Even with low unemployment, wage growth is lagging. The most recent employment report reported wages increasing by just 2.9 percent over the last year. With inflation at 2.1 percent, that’s not much of a pay raise. To the extent that wage growth has picked up in recent months, a major contributor has been increases in state and local minimum wages that Republicans and the president opposed.
Trump’s signature legislative accomplishment, the 2017 tax cut, has produced none of its promised benefits, including the $4,000 pay raise that he and his allies promised to American workers. In fact, as a result of the tax cut, 91 companies in the Fortune 500 paid no federal taxes last year. The country’s six biggest banks saved $32 billion at the same time that they laid off more than 1,000 employees.
The tax cut has also failed to produce the “four, five and even six percent” economic growth that Trump promised. In the fourth quarter of 2019, the GDP growth of 2.1 percent was lower than both the growth rate before the tax cut was passed in 2017 and the average of Obama’s second term (2.4 percent). Instead, the tax cuts have produced annual budget deficits of $1 trillion, which Trump has signaled may lead to cuts in Social Security and Medicare, in addition to his ongoing efforts to erode the social safety net.
Ironically, despite the president’s pledge to help the “forgotten men and women,” blue-collar job growth—which includes construction, manufacturing, and mining—remains anemic, only growing at 0.8 percent in 2019 compared to 2 percent in Obama’s final term.
What’s more, the ongoing trade war plunged the manufacturing sector into recession last year, which has stunted economic growth in states like Wisconsin and Michigan. Tensions with China produced a 24 percent increase in farm bankruptcies last year, with the most coming from Wisconsin. The Congressional Budget Office estimated recently that Trump’s trade policies will cost American households an average of $1,277 this year.
Worse yet, employers reported the highest number of layoffs in four years. For workers who are able to find new jobs, data shows they earn about 10 percent less than before. That gap is even greater for workers who were at the same job for three years or more.
But while the economic reality under Trump is troubling for most Americans overall, it’s even more daunting for African-American workers, who have an unemployment rate almost twice as high as white workers. Displaced African Americans earn 13 percent less in their new jobs. Those who were employed for three or more years earned 31 percent less in their new jobs.
Despite the headlines, too many workers are not feeling the economic boom Trump describes. Instead of making investments to provide Americans with the world-class education and training needed for 21st-century jobs, the president and the Republican Congress chose stock buybacks to benefit the wealthy and a temporary sugar high for the economy that has now worn off.
