Why It Doesn’t Seem Like The Economy Fits The Numbers

Michael Sykuta —  29 October 2012

As an economist, it’s inevitable that social friends ask my thoughts about current economic issues (at least it’s better than being asked for free legal advice). This weekend a friend commented about the “recovery that isn’t”, reflecting the public sense that the economy doesn’t seem to be doing as well as government reports (particularly unemployment reports) and some politicians make it out to be.

This morning I ran across a weekend article in the WSJ Online that reports on the broader unemployment rate by State in the U.S. In the article, Ben Casselman discusses the difference between the official unemployment rate, formally known as U3 (those who are not working but actively seeking work), and the broadest Labor Department measure, affectionately called U6, which includes people who want to work but are not actively looking and those who want full-time work but are working part-time jobs to make ends meet. Casselman shows how the difference in those measures sometimes reveals significant differences. Take Idaho, for instance, whose unemployment rate is below the national average, but whose U6 measure is above the national average, suggesting a disproportionately large number of people who want full-time work but are stuck with only part-time job opportunities or have given up looking.

This got me wondering just how the difference between U3 and U6 are behaving on a national level, so I went to the Dept of Labor’s website and downloaded both series going back to 1994, when U6 was first introduced.

US Unemployment and Underemployement, 1994-2012This figure shows U3 (seasonally adjusted, in blue) and the difference between U6 and U3 (i.e., underemployment, in red) for the past 18 years. As one would expect, the two are positively correlated. But a couple things stand out. First, while positively correlated, the degree of correlation before and after mid-2001 is very different. For the first eight years, the two track very closely; not so closely afterward.

Second, while unemployment has dropped 2% since hitting its peak of 10% in October 2009, the underemployment rate has barely moved, dropping from 7.2% in October 2009 to only 6.9% in September 2012. So, regardless of whether you buy Jack Welch’s conspiracy theory about the unemployment (U3) numbers being manipulated, it’s clear that there is a persistently large portion of the labor force–double what it had been in 2008–that is wanting full-time work and unable (or discouraged) to find it.

Which pretty well sums up, I believe, the disconnect between the numbers and the reality of the economy. Pointing to the official unemployment numbers masks the truth about the state of the labor market in the US and belies the economic malaise that persists.

4 responses to Why It Doesn’t Seem Like The Economy Fits The Numbers

  1. 

    First of all I would like to say excellent blog! I had a quick question
    which I’d like to ask if you don’t mind. I was interested to find out how you center yourself and clear your head before writing.
    I’ve had a hard time clearing my thoughts in getting my thoughts out there. I do take pleasure in writing but it just seems like the first 10 to 15 minutes are wasted just trying to figure out how to begin. Any ideas or tips? Cheers!

  2. 

    Can it be because employers, fearing Obamacare and other liabilities of hiring full timers, are opting for part-time workers instead?

    • 

      I opted not to blame or suggest specific reasons for *why* underemployment is so persistent, but I believe that is certainly a significant factor behind this trend. It would be difficult to believe otherwise.

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