Economics

Unemployment, Underemployment, and the Comprehensive Jobless Rate

When it comes to the health of the labor market, we don’t know the full story.

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When he testified before Congress last week, Federal Reserve Board Chairman Jerome Powell made an interesting comment: "We don't have any basis or any evidence for calling this a hot labor market." He added that "to call something hot, you need to see some heat." Come again? The unemployment rate is 3.7 percent, and this is somehow a lukewarm market?

An inability to perceive this alleged lukewarmness of the labor market may be explained by the fact that the main metrics we use to report the health of the labor market—this 3.7 percent unemployment rate—captures only one aspect of the employment story.

That said, whatever this metric implies, it probably makes most governments around the world drool with envy. Many African countries face unemployment rates of 20 percent or above. The rate in Greece is 17.6 percent. The French unemployment rate stands at 8.7 percent. In Italy, it's 9.9 percent. The Euro Area unemployment rate is 7.5 percent, and that's its lowest rate since 2008. Sweden is at 6.8 percent. Australia is 5.2 percent, and in Canada, it's 5.5 percent.

Yet, according to the website Trading Economics, the low U.S. rate isn't really unique. The United Kingdom has a 3.8 percent unemployment rate. Germany has a 3.1 percent rate in spite of suffering through a bout of slow growth. Japan's rate is a mere 2.4 percent. Singapore is at 2.2 percent, while Qatar has a reportedly minuscule rate of 0.10 percent.

The problem with the headline unemployment rate produced by the Bureau of Labor Statistics (BLS)—called the "U-3 rate"—is that it only counts people who aren't working but want to work, defined as having made an effort over the past four weeks to find a job and being available to start a job.

The BLS does publish other unemployment metrics. There's the "discouraged worker" unemployment rate (U-4), which includes job-wanters who, while they haven't searched for employment in the past month because of economic reasons (e.g., believing that they don't have the training for the available jobs), have actively pursued employment in the last year. Then there's the U-5 rate, including those who similarly haven't looked for work because of "non-economic reasons," such as caring for family members or lacking transportation.

But BLS estimates don't count people who have full-time jobs and who would like to work more hours or switch jobs. It doesn't account for some important nuances, like an older population. That's why many economists, from the University of Maryland's John Haltiwanger and Katharine Abraham to Dartmouth College's David Blanchflower to the University of Stirling's David Bell in the U.K. to economists at the Dallas Fed, are all coming up with new metrics.

My colleague Michael Farren is pushing for new metrics that would give a more accurate picture of the labor market, too. Originally designed by economist Scott Winship in a paper for the Mercatus Center, Farren embraces the idea and is doing the hard work to make the case for a metric to government officials and journalists. He calls it the Comprehensive Jobless Rate (CJR). It's comprehensive because it counts all adults who say they want jobs, regardless of whether they are or aren't actively looking for work.

Farren tells me, "The comprehensive jobless rate could be referred to as the 'U-5b' because conceptually, it falls between the U-5 and U-6 unemployment rates. (U-6 adds in people who are working in part-time jobs but want full-time employment. But the U-6 metric is less useful as a measure of joblessness because it conflates 'unemployment' with 'underemployment' by counting part-time workers as if they didn't have a job at all.)"

The CJR (or U-5b) uses the same BLS data but counts people who otherwise fall through the cracks of the official BLS unemployment measures: those who gave up looking for work more than 12 months ago or are currently unavailable to take a job but are still actively searching for future work opportunities (like graduating students). It's not intended as a replacement for the other unemployment measures; rather, it's useful as a benchmark to better understand the unemployment metrics and fact-check politically motivated exaggerations.

The CJR is about 3.3 percent higher, on average, than the headline unemployment rate. But don't feel too bad about that because this higher CJR hit an all-time low last April at 6.5 percent! Whether that's a hot market or not, I'll let you be the judge.

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29 responses to “Unemployment, Underemployment, and the Comprehensive Jobless Rate

  1. Unemployment is a major economic issue which is affecting youth the most. Instead of investing in weapons countries should invest in employment so that skilled youth should not remain unemployed.
    Love To Travel

    1. “Instead of investing in weapons countries should invest in employment”

      Now there’s a nonsensical feel-good platitude. Countries invest in weapons because national defense is the government’s responsibility. Private sector businesses invest in employment because they employ most of the people. At least in capitalist countries.

      1. @LiborCon – Yup. I might even expound on this with the fact that companies don’t invest in employment so much as invest in a return on labor.

  2. unemployment is the most important issue that is now you can use to listen to every country. this is the situation when the educated people looking for a job and they are not able to get. and the term underemployment refers to the people who are working in a lower capacity than they are qualified this includes in a lower-paid job of for fewer hours than they would like to work. now people work freelance for the online companies like; last minute essay writing service and make money and i think this is a great way to income from at home.

  3. The bots are busy. They seem to like this article.

    1. I just feel bad for all the shills the bots have put out of work.

      1. FML. I just fell for it. Gonna go self-flagellate, be right back

    2. Yeah, I’ve been seeing a lot more of these the past two days. What happened to the spam filters?

  4. According to AOC, the economy is so bad that even a low unemployment rate is a troubling sign. It just means people are working two or three jobs and barely scraping by.

    #DrumpfRecession
    #LibertariansForAOC

  5. yea! Does that mean with a more realistic unemployment # we don’t need all the illegals?

    1. No human being is illegal.

      And more immigration is always a good thing.

  6. Only Obama can have a HOT job market!

    Lefty history books: Obama assumed office and immediately had to deal with the Great Recession that Bush caused. Obama gave more TARP funds to businesses and that got the USA out of the Great Recession in 1 year. Obama spent the rest of his 7 years being the the most peaceful President for all time. He was even awarded the Nobel Peace Prize for his work.

  7. This is insane.

    But BLS estimates don’t count people who have full-time jobs and who would like to work more hours or switch jobs.

    So we need a way to make sure that employed people can be made to count against Trump as well as unemployed people.

    1. And the issues with the UE rate have been known for a long time. Oddly, DeRugy never seemed concerned with them from 2009 until about January of 2017. Funny that

    2. That’s what I got from the article.

      1. What does it matter if the person wants to switch jobs? I want to switch jobs too. I want to be a works driver for an LMP1 car at Le Mans. Does that mean I am unemployed? According to DeRugy it does I guess.

        1. @John – Yes, you are unemployed! When you make GTE Am, you are underemployed. When you make Pro you are upwardly mobile. But until you are LMP1, you are not considered truly, gainfully employed (and even then only if you’re with Toyota). Unemployment accounting is pretty simple when you think about it.

  8. “But BLS estimates don’t count people who have full-time jobs and who would like to work more hours or switch jobs.”

    And it’s absurd to suggest that people with full time jobs should be counted as unemployed or even under employed, even if they are actively looking for a “better” job.

    1. “or are currently unavailable to take a job”

      It’s equally absurd to call people who are unable (for whatever reason) to take a job as unemployed.

      un·em·ployed
      /ˌənəmˈploid/
      adjective
      (of a person) without a paid job but available to work.

  9. Wow, Reason can’t get unemployment right anymore?

  10. How about a measure of the adult population that

    1. Does not have marketable skills.
    2. Does not feel like they have to earn a living.
    3. Does not have a personal retirement nest egg or inheritance large enough to live on.

    Call it U(seless) rate. I would like to see how this has varied over the past 100 years.

  11. When he testified before Congress last week, Federal Reserve Board Chairman Jerome Powell made an interesting comment

    If you look at past comments by Fed Chairmen (say, before the housing bubble burst), you see that their comments come in two forms: (1) deliberate lies intended to fool the market, or (2) a complete lack of understanding of economic reality.

    I suppose that’s “interesting” as a testament to hubris and stupidity, but it doesn’t tell you anything about economics.

  12. My colleague Michael Farren is pushing for new metrics that would give a more accurate picture of the labor market, too. Originally designed by economist Scott Winship in a paper for the Mercatus Center, Farren embraces the idea and is doing the hard work to make the case for a metric to government officials and journalists. He calls it the Comprehensive Jobless Rate (CJR).

    You can’t capture the time/money preferences of 330 million people in a single number “more accurately”. That’s the same kind of economic hubris and nonsense as Soviet central planning.

    It’s not intended as a replacement for the other unemployment measures; rather, it’s useful as a benchmark to better understand the unemployment metrics and fact-check politically motivated exaggerations.

    We don’t need a new number for that; in addition the unemployment rates, we already have: long term unemployment rate, disability claims, labor participation rates, number of people entering/leaving the labor force, wage statistics, number of hours worked, etc. If you want a portfolio of numbers, the regular unemployment rates together with all these others gives you all the information. Concocting yet another complex aggregate doesn’t contribute anything.


  13. …while Qatar has a reportedly minuscule rate of 0.10 percent.

    Ok, you made me laugh! Turns out slave economies do really well at having low unemployment.

    The bit about being counted in the statistics if you would like to change jobs is silly though. Especially when you consider how often people change careers in the modern economy. I’m assuming that bit isn’t being stated correctly, or if it is the measure has it’s own agenda.

    1. More slaves, oh sorry, “migrant workers” have died trying to construct facilities for qatars world cup than all the laborer deaths combined of the past 10 olympics and world cups combined.

      So i guess as slaves and deaths go up, unemployment goes down.

      Should we try it with central Americans?

  14. And what really matters is, trump as of yet hasn’t changed the way these are accounted for since the Obama administration changed them to try making his numbers look better by removing the “no longer looking for work” of his shitty numbers.

    So its apples to apples comparing Obama and trumps numbers. And as the article points out, even using their theoretical new formula, trump hit its record low in April.

    So Obama really can eat trumps shit.

  15. Our real economic situation has a few problems.

    One, labor force participation rates are FAR lower than they were pre recession. It’s not just demographic change either. They’re all just people who have mostly given up on finding gigs though.

    Two, the types of jobs we have suck. We have a massive underemployment problem. If one looks through stats, and I hate to use a lefty term here but it is apt, we have a lot fewer family wage jobs. We have added jobs in the higher end, and lower end, and the middle has gone away. Think maybe 40-75K range.

    This is why we have people that in generations past would have made $60K a year doing a gig making $30K making lattes or whatever. None of it is good or healthy, but because of offshoring and automation, and the natural limit of most of the populations IQ preventing them moving up the food chain, I don’t know that there is a solution.

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