Good morning, Hank. It's Tuesday!
So last week the Bureau of Labor Statistics
announced that in the US in December the unemployment rate was 4.7%,
close to the lowest it's been in nine years
and fairly close to the lowest it's been since the early 1970s
but you may have also heard that the real unemployment rate in the US
is 6% or 9.2% or 20% or even 38%
and to me this seems like one example among many
of how in our current political discourse different people
are reaching vastly different conclusions because they're all looking at different sets of data
and until we agree on what the facts are
we can't meaningfully discuss what they mean.
Let's start with that 38% number.
This refers to the labor force participation rate,
which is a measure of how many Americans over the age of 18 (correction: 16) are either
working or actively looking for work.
Now, as you can see this rate has declined quite a bit over the last 20 years,
from over 67% to under 63%
but by far the biggest reason for this decline
is that Americans are getting older which means that
a higher percentage of them have retired.
But even if you look at the labor force participation rates of people
between the ages of 25 and 54 that rate has also declined
about 1.5% since the great recession and about 3.5% since its height in the late 1990s.
What's the deal there? Well, the two biggest factors seem to be
more people choosing to be full-time parents,
and more students in professional and graduate schools.
According to the most recent data
90 of the 95 million Americans not in the workforce say they 'do not want a job now,'
but the remaining five million people of course it a LOT of people
like it's 3% of the total US labor force
and some portion of declining labor participation
is probably due to lack of job opportunities. People might have retired earlier
than they otherwise would've because they lost a job,
or they might be in graduate school, but
they could be tempted into the workforce for the right opportunity, etc.
Now, smart people disagree about how much of the declining labor participation
is attributable to the economy but on its own
that statistic does not tell us much about unemployment.
For one thing, the labor force participation rate will
continue to decline as the population continues to age
whether the economy is good or bad.
But also if you're gonna claim that the real
US unemployment rate is 38%
that means back in 1967 it was 41%
and that the lowest the U.S. unemployment rate has ever been is 33% in 2000.
So let's move on to actual measures of unemployment.
Every month, the U.S. Census Bureau surveys 60,000 households to find out how many people are out of work,
and then on the first Friday of every month they release six different unemployment rates
because nothing is ever easy, but for our purposes only four of them matter.
First you have U3, which is the official unemployment number.
It includes all adult civilians who are without work and have looked for a job within the last four weeks.
That's the number that is currently 4.7%
Then you have U4, which adds in so-called discouraged workers: people who are without jobs
but have stopped looking for work because they don't believe there are any jobs they can get.
Adding them in raises the current unemployment rate to 5%,
and then U5 adds in so-called marginally attached workers
who are people who want to be in the work force but haven't recently sought jobs
because they are taking care of family responsibilities or taking classes,
and they bring the unemployment rate up to 5.7%.
And then, lastly, U6 includes people who work part time but want to be working full time.
Including them brings the current unemployment rate up to 9.2%.
So which of these is the real unemployment rate?
Well, it depends on what you're trying to measure.
The U3 number is useful for one thing because it's closely aligned with international standards,
which allows us to compare our unemployment rate to that of other countries.
Like in Brazil, a similar measure has the unemployment rate at 12%;
in Germany it's 4.1%; in Spain it's 19%.
But the U6 number is also useful because it helps us to understand how much so-called 'slack' there is
in the labor market. That is, how much room there is room there is for job growth
As you can see U3 and U6 basically track together
but there are slight differences, like the distance between U3 and U6 is currently slightly higher
than it was before the 2009 recession, indicating that there may be more room for job growth than the U3 number would have us conclude.
The most important thing, though, is that when talking about our unemployment rate,
we can't compare oranges with grapefruits, and unfortunately
that's happening a lot in our political conversations right now.
You might hear for instance that at the height of the recession
unemployment was 10%, and now it's only down to 9.2%,
but that's mixing unemployment measures.
If the unemployment rate is currently 9.2%, it was 17% at the height of the recession.
And if it was 10% at the recession's peak, it is currently 4.7%.
By either measure, the unemployment in the United States is lower than
the average has been since World War Two but it's still somewhat higher than full employment.
But of course, that's only part of the picture because people don't just need jobs. They need good ones.
On that front, the recovery from the recession is probably still unfinished.
Median household incomes are likely still lower than they were in 2007, although we don't have the final data for 2016 yet.
So in summary, no matter how you measure it, US employment is low
but could be lower, and median household income is rising, but not yet to all-time highs.
And if we could agree on these facts,
maybe we could move forward with the discussion about how to continue
or even expand this economic recovery.
Okay, non-American nerdfighters, I am sorry that this was such an American video,
but we're having just a smidge of a political discourse crisis over here.
Let me know in comments what non-American topics I could cover next week to make it up to you.
Okay Hank, I'm off to go see the movie for Hidden Figures for a second time
because I liked it that much. Maybe also let me know in comments what your favorite Oscar-contending movies are
my favorites are Hidden Figures and Moonlight.
Hank, thanks for keeping me employed all these years.
I'll see you on Friday.