A useful discussion of the unemployment rate and what it means

Matthew Bandyk at US News & World Report has this useful discussion of the unemployment rate.

The unemployment rate is a murky number. It seems simple enough to look at the national unemployment figures released every month by the Bureau of Labor Statistics. In July, that number was 9.4 percent. At the peak of the early '80s recession—December 1982—unemployment hit 10.8 percent.

So where's the murkiness? The problem is that many of the people one would think of as "unemployed" are not included in this unemployment rate. For one, the Bureau of Labor Statistics does not count unemployed people who have been discouraged by the labor market and have given up looking for work. You are counted as a "discouraged worker" if you are available to work, want to work, and tried to look for work in the past year but gave up within four weeks for reasons including the belief that no work is available. The fact that the national unemployment rate excludes these discouraged workers has led many observers to believe it does not reflect the "real" level of unemployment. "Ask the average person if he or she is unemployed, and there is little hesitation in giving you an answer, but that may not agree with government definitions," says John Williams, an economist who examines government statistics at shadowstats.com.

Other people who aren't counted in the official number are those who have been forced by the economy to work part time. The number of workers who wanted full-time jobs but could find only part-time work was 1.8 million last month, which amounts to 1.3 percent of the labor force. Still, that's not as bad as December 1982, when forced part-time workers accounted for 3 percent of the labor force.

What happens when you start counting all these people who have been heavily battered by the labor market? The Bureau of Labor Statistics has another rate that includes "marginally affected workers" and part-time workers. That number, referred to as U-6 because of its identification in bureaureports, was 16.3 percent last month—nearly 7 percentage points higher than the official unemployment rate. What's more, the number of people who have given up on finding work has been steadily rising over the past few months, from 685,000 in May to 796,000 in July. "If you have that number of people leaving the workforce, that seems to me a serious problem," says economist John Lott. . . .