The 'Real' Unemployment Rate Is Still Really Lousy

US News

If you have doubts about the official jobless rate, there's another rate you can check out instead--the "real" unemployment rate, which measures everybody considered unemployed plus a lot of others who are falling through the cracks.

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The government calls this the "U-6" rate, and it has become a source of considerable intrigue lately. Some critics of President Obama contend that the government keeps the "real" rate a secret, because it reveals an economy that's in far worse shape than the official unemployment rate suggests. Republican presidential candidate Mitt Romney says frequently that while the official unemployment rate may be improving, the real rate is still terrible. "If not for all the people who have simply dropped out of the labor force," Romney said in a recent statement, "the real unemployment rate would be closer to 11 percent."

It may be even higher than that, depending on how you count. The official unemployment rate fell in September from 8.1 percent to 7.8 percent, which is good news for Obama heading into the last few weeks before the November elections. The unemployment rate is now 2.1 percentage points below its 2009 peak, and at the same level as when Obama took office.

But Romney is correct to suggest that the official rate doesn't capture the depth of pain in the labor market. His rate, of nearly 11 percent, comes from an extrapolation involving the percentage of adults considered to be part of the labor force. But the government's own U-6 measure is even higher, at 14.7 percent. That's the percentage of adult Americans who are unemployed, underemployed, too discouraged to look for work or "marginally attached" to the labor force.

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A bit of explanation about the U-6 rate: First off, it isn't secret at all. The government publishes this data in the same monthly report as all the other official employment numbers, and anybody can find it on the Internet. It just gets less attention because economists, politicians and the press tend to focus on one takeaway number--the basic unemployment rate, known as U-3. (I'll explain how to find the U-6 data to anybody who contacts me at the Twitter handle posted at the end of this story.) There are several other measures of unemployment--U-1, U-2, U-4 and U5--that all slice employment data in different ways.

Second, all of these measures have been in place for a long time, with occasional refinements in the way the government gathers and analyzes the data. While the data can be imprecise in any given month (especially before revisions come out), they're a very reliable gauge of how the job market changes over time. And the methodology is all published in the BLS Handbook of Methods. Pick up your copy today!

Third, the U-6 rate is always higher than the U-3 rate, since by definition it captures struggling workers not counted in the narrower measure of unemployment. So simply pointing out that the U-6 rate is higher than the U-3 rate really doesn't tell you anything. What's more meaningful is the size of the gap between the two numbers--and that has swollen over the last five years.

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The government's own data shows that a lot of struggling workers who aren't counted in the U-3 rate are counted in the U-6 rate--which ought to convincingly refute anybody who thinks the Obama administration has been fudging the jobs numbers to make its own record look better. Here's the U-3 rate, the U-6 rate, and the difference between them for three points in time:

--Sept. 2002 (when the recovery from the 2001 recession was well underway): U-3: 5.7 percent; U-6: 9.6 percent; gap: 3.9 percentage points.

--Sept. 2007 (right before the latest recession started): U-3: 4.7 percent; U-6: 8.4 percent; gap: 3.7 points.

--Sept. 2012 (the most recent numbers): U-3: 7.8 percent; U-6: 14.7 percent; gap: 6.9 points.

So while the basic jobless rate today is 3.1 points higher than it was five years ago, the broader U-6 rate is 6.3 points higher. That corroborates several trends for which there's already a lot of anecdotal evidence: A lot of part-time workers would prefer a full-time job, but can't find one. Companies are relying more on part-timers, freelancers and consultants than on permanent staffers with full benefits. And many people are working at lesser jobs for lower pay than they were before the recession.

Romney and his fellow Republicans may blame Obama for this tattered portion of the work force, but it's not necessarily Obama's fault. Some economists think a growing wave of retirements among baby boomers account for part of the shift from full-time to part-time work. The twin revolutions of globalization and the advent of digital technology are also shaking up the workforce, regardless of who's in the White House. And temporary factors, such as a federal extension of jobless benefits that began during the recession, might be discouraging some people from looking for a job. The expiration of those benefits, which has begun, to occur, may, in fact, help explain why the latest job gains were better than expected.

It's also worth pointing out that the U-6 rate has been improving over the last two years, just as the U-3 rate has been. U-6 peaked at 17.2 percent in October, 2009, which was the same month that the narrower U-3 rate peaked at 10 percent. Since then, U-6 has actually fallen a bit faster than U-3, which means the gap between the two is starting to narrow. But that's not something you're likely to hear Obama crowing about.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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