The 20-Hour WorkweekThe unemployment rate seems low. That's because it's not counting all those underemployed workers.
Posted Wednesday, Oct. 22, 2008, at 3:59 PM ET
It's hard to overstate the poor numbers coming out of Wall Street in recent months. But could it be that we're overstating the gravity of the situation? As job losses have mounted and consumer confidence has plunged, policymakers, news organizations, econo-pundits, and even some of my Slate colleagues have noted that the unemployment rate, which rose to 6.1 percent in September, seems to be at a nonrecessionary, noncatastrophic, low level. The unemployment rate is still below where it was in 2003; and between September 1982 and May 1983, the last very deep recession, it topped 10 percent. (Go here for a chart and historical data).
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StumbleUponBut maybe the employment data are much worse than they seem. In the past year, the two key measures of employment—the unemployment rate and the payroll jobs figure—have been poor but not awful. The unemployment rate has risen from 4.5 percent a year ago to 6.1 percent. And in the first nine months, 760,000 payroll jobs were lost. This is unwelcome but not catastrophic. So why do things feel so bad? It's not because, as Phil Gramm suggested, we're a nation of whiners. And it's not a matter of columnists and spin doctors shading the numbers to make things look worse.
Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.
Here's why. Back in the 1990s, the Bureau of Labor Statistics recognized that in a changing economy, in which outsourcing, self-employment, and contracting were becoming more commonplace, the traditional methods of measuring unemployment and job growth might not accurately portray the economic situation. And it knew its methodology had some quirks—the unemployment rate doesn't account for people who have given up looking for jobs, or who have taken themselves out of the work force. So since 1994, the BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: "persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past." There are discouraged workers, a subset of the marginally attached crowd, who have "given a job-market related reason for not looking currently for a job." There are people who work part-time because they can't find—or their employer can't provide—full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.
And the alternative labor underutilization measures show a lot of stress. The data on people not in the work force show the number of people not looking for work because they're discouraged about finding jobs has risen from 276,000 in September 2007 to 467,000 in September 2008—up 70 percent. The percentage of people unemployed for more than 15 weeks stood at 2.3 percent in September 2008, up from 1.6 percent in September 2007, a rise of nearly 45 percent. But the most troublesome is the U6. The U6 is sort of the summa of job angst, a shorthand tally for the aggregate of job-related frustration. (Moneybox covered some of this terrain back in 2004.) To compile the U6, the BLS takes the number of unemployed, plus all marginally attached workers, plus all of those employed part-time for economic reasons, and then calculates that total as a percentage of the sum of the entire civilian labor force plus marginally attached workers.
The U6 in September rose to 11 percent, its highest level since the data series started in 1994 and significantly higher than it was in the last recession, in 2001. The ratio between the U6 and the official unemployment rate has remained relatively steady over the last several years. But that means that as the unemployment rate has risen, so too has the portion of the population suffering from other types of work deficits. Three years ago, when the unemployment rate was 5.1 percent, an additional 3.9 percent of the labor force fell into one of those other underutilized categories. Last month, with the unemployment rate at 6.1 percent, an additional 4.9 percent of the labor force was underutilized. (See charts comparing the unemployment rate and the U6 rate.) Add it up, and more than 10 percent of American workers are essentially not contributing full-time to their families' well-being and to that of the economy at large. The unemployment rate may still be historically low, but the underutilization is historically high.
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Mr. Gross suggests that unemployment is worse than it appears because "traditional methods of measuring unemployment...might not accurately portray the economic situation." As evidence he cites the U6 statistic which tries to measure underemployed and discouraged workers.
He notes, but for some reason ignores, the fact that the ratio between the U6 and the official unemployment rate is relatively constant. This, though, is the crux of the matter: As long as this ratio is constant, then the official unemployment rate *is* a useful tool for comparing the depths of employment problems during different recessions. The official unemployment rate isn't as bad as in the early '80s, so there's no reason to believe that the total fraction of un/under/discouraged workers is worse now than it was then, either.
If Mr. Gross could present evidence that disproportionately more workers were underemployed and discouraged, rather than traditionally unemployed, in the current crisis, then he *would* have a story.
--grichard
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Increasing levels of unemployment seems to be due to a surplus of labor, which can be explained by the efficiencies brought about by computers and automation. A solution would be to cut the hours of the standard work week.
While this would cause economic disadvantage to countries doing it unilaterally (as France experienced), if it were done by treaty among all of the G-7 countries, it would level the playing field and instantly increase the value of labor and cut unemployment.
--JackHughes
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The numbers do not include people that are self employed but do not have work to do. I have a small remodeling company that has been in business for twenty one years. I have only worked about four of the last ten months, people are not spending money on their homes unless it is necessary.
At one point I had eight people working for me and now it is only me with a helper as needed. Someone needs to count me in with these numbers, I cannot get unemployment because I am self employed, they say I am not doing enough to find work. If no one is spending money on their homes there is no work.
--THR
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Full Time Job? What is that? I have just spent the last three years waiting to receive the full time status at my place of employment. I, as well as the majority of their "employees", worked 40 hours a week and more during the busy season, but were considered freelancers until they deemed us "real employees". After working there for 18 months or so they had to produce the 401 K plan that they offered their full time employees however they did not match any contributions. I could not receive any health benefits and I never knew when I would get the call saying that business was slow don't come in tomorrow. The last time I got that call I had two months off.
Previous to that I worked 35 hours a week in a chiropractor's office for two years and wasn't considered full time and once again had no benefits. I was available for 40 but it was less expensive to keep me at part time rates. That office consisted of two people, the doctor and myself.
Many retail spots make sure to employ more people and work them fewer hours to save on benefits. My children have begged for more hours and been refused. The problem with that is that they do not have set hours every week and can't predict what days they will have off, in order to get another part time position.
What the government describes as unemployed is only the tip of the iceberg. I am so grateful to see someone in the media finally discuss this.
--anonymousone
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The underemployed number was not even remotely addressed before the late 1980's yet it existed as surely as it does today. As an employer who employs mostly part time workers, the landscape of reporting has changed dramatically from 1960 to now. Small business, which employed more non-government workers than big business in the pre 1980 world, often chose to pay "casual labor" to part time and seasonal workers hence they didn't show up at all -- in any category -- yet they were surely underemployed. At any one time as much as 20% of my workforce may have been casual labor. The requirements for casual labor have tightened and the enforcement has increased to the point that casual labor has almost ceased to exist. It's been that way for at least the last 15 years.
Bottom line is that any time related comparisons are likely to lead down a deadend path for analysis purposes. The evidence of a terrific recession, which has been upon us for at least the past 12 months -- closer to 18 months for most of retail which feels it first and hardest -- has been all around us.
--coachleif
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(10/28)