How You're Being Misled on Unemployment

February 5th 2015

Unemployment line in California

Every month the Bureau of Labor Statistics (part of the US Department of Labor) issues a report on unemployment levels. The most recent report puts U.S. unemployment rates at 5.6 percent. This has produced two media narratives, split along partisan lines. Democrats are saying that the drop in unemployment is an indicator of the strength of the economic recovery. Republicans are saying that the numbers are misleading, and that the economy is still far from recovered.

Jim Clifton, the Chairman and CEO of Gallup (you know, the poll people) wrote an op-ed calling the 5.6 percent statistic "the big lie." His article has caused some news outlets to say that Democrats are using the unemployment numbers to mislead the public about the economic recovery in hopes of increasing their prospects in the upcoming election.

So which side is right?

Both of them. The current numbers are misleading, but they are only as misleading as the unemployment numbers have always been. Most Americans are unaware of how the BLS defines and reports on unemployment. The statistics are often quoted without the context needed to understand them. Politicians and media outlets take advantage of the lack of understanding of these numbers pretty equally, regardless of party affiliation.

Breaking Down Unemployment Statistics

How does the BLS define Unemployment?

The Bureau of Labor Statistics uses six different numbers (U1-U6) to track unemployment. When people talk about the "unemployment rate" they are usually talking about what the BLS refers to as the "U3" number. That's the one that's at 5.6 percent right now.

Table A-15Source: BLS 

Each of the six measurements tracks a different definition of unemployment. U3 is "Total unemployed as percentage of the civilian labor force." But the way the BLS defines "unemployed" and "labor force" isn't the same as our colloquial understanding of those terms. The BLS only counts people as "unemployed" if they have looked for work in the past month. This is because some people who don't work shouldn't be counted as unemployed -- retirees, stay-at-home parents, disabled people who cannot work, etc. The BLS refers to anyone who hasn't looked for work in the past month as "outside of the labor force".

Unfortunately, that means that many long-term unemployed people who still need work, but didn't look this month, are not counted in the U3 number. These people are referred to as "discouraged workers." And persistently slow growth means that there are quite a few of them. The longer someone is without work, the harder it is for them to find a job, and some eventually give up. Because the U3 doesn't count them, the U3 can be deceiving.

Critics, who think the economy isn't doing as well as the U3 seems to suggest, think that the U6 number is a more accurate measurement. The U6 is currently at 11.2 percent and measures "Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force." That means the U6 measures everyone who is unemployed and has looked for work in the past month, plus all the people who have looked for work in the past year but not in the past month for job market related reasons (or, discouraged workers), plus everyone who is forced to work part-time while they continue to look for full-time work (or, underemployed workers), plus everyone who is unemployed and isn't looking for work, but still wants a job.

The U6 number isn't used as often to discuss unemployment because it includes people who technically aren't unemployed. But, underemployment is a major problem in today's economy. It's a waste of resources when people who have the education and training for full-time work must work part-time jobs. This also displaces people without those skills and training who can only work part-time jobs. In today's economy, the U6 is probably a more accurate way to look at economic recovery. And right now, it is twice as high as the U3. But it is falling at a similar rate as the U3, so things are still technically getting better.

The economy is not as recovered as Democrats may like us to believe. But they are using the same statistics we've almost always used to measure economic growth. It's just that things are so bad right now that we should be using a different measurement. So calling them liars might be a little too harsh.

Statistics are always complicated

The unemployment rate nationwide doesn't take into account the very important factors that affect joblessness for different groups in different ways. Geography is one example. What good does a falling national unemployment rate do for people in Detroit where the unemployment rate is much higher? Or in Nebraska, where it is much lower?

Statistics used without context can even be damaging to some groups. One example is when comparing the unemployment rates of different ethnic groups. Black people (particularly black men) consistently have higher unemployment rates than whites. Some use this statistic to "prove" that black people are lazier than other groups. But, putting the statistic into context may tell a different story. Black people are over represented in the U3 measurement because they are less likely to give up on looking for employment. This is referred to as the resilience factor. The very statistic that appears to paint blacks as lazy, when properly contextualized shows that they are actually the most resilient group of job seekers. In order to truly compare joblessness rates across ethnic groups we'd have to look at why the most resilient job seekers are also the ones least likely to find employment. Discrimination is likely a factor, so are relative education levels, and different industries with different rates of growth attracting more of some ethnic groups than others. All of those considerations draw a picture far too complicated to be expressed in a single statistic.

Unemployment is too complicated for sound-bites

There are big, systematic issues in the country that are slowing job growth, such as: is the types of jobs that being created, underemployment, educational disparity, outsourcing, immigration and trade agreements taking jobs away from American workers, or any number of important issues. But none of these things can be easily expressed in a statistic. When looking for someone to vote for, it is important that voters know what candidates intend to do about all of these issues. Quoting a single number doesn't give us that information. And both major political parties are guilty of over-simplifying the issue to mislead the public and gain support.

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