What Is the Real Unemployment Rate? [w/ subs]

00:00:00 – Good morning Hank, it's Tuesday!
00:00:01 – So last week the Bureau of Labor Statistics
00:00:03 – announced that in the US in December the unemployment rate was 4.7%,
00:00:08 – Close to the lowest it's been in nine years
00:00:10 – and fairly close to the lowest it's been since the early 1970s
00:00:14 – but you may have also heard that the real unemployment rate in the US
00:00:17 – is 6% or 9.2% or 20% or even 38%
00:00:21 – and to me this seems like one example among many
00:00:24 – of how in our current political discourse different people
00:00:27 – are reaching vastly different conclusions because they're all looking at different sets of data
00:00:32 – and until we agree on what the facts are
00:00:34 – we can't meaningfully discuss what they mean.
00:00:36 – Let's start with that 38% number
00:00:38 – this refers to the labor force participation rate
00:00:40 – which is a measure of how many Americans over the age of 16 are either
00:00:44 – working or actively looking for work.
00:00:46 – Now, as you can see this rate has declined quite a bit over the last 20 years
00:00:49 – from over 67% to under 63%
00:00:52 – but by far the biggest reason for this decline
00:00:55 – is that Americans are getting older which means that
00:00:57 – a higher percentage of them have retired.
00:01:00 – But even if you look at the labor force participation rates of people
00:01:03 – between the ages of 25 and 54 that rate has also declined
00:01:06 – about 1.5% since the great recession and about 3.5% since its height in the late 1990s
00:01:12 – what's the deal there? Well, the two biggest factors seem to be
00:01:15 – more people choosing to be full-time parents,
00:01:17 – and more students in professional and graduate schools
00:01:19 – according to the most recent data
00:01:21 – 90 of the 95 million Americans not in the workforce say they 'do not want a job now'
00:01:26 – but the remaining five million people of course it a LOT of people
00:01:29 – like it's 3% of the total US labor force
00:01:32 – and some portion of declining labor participation
00:01:34 – is probably due to lack of job opportunities: people might have retired earlier
00:01:38 – than they otherwise would've because they lost a job
00:01:40 – or they might be in graduate school but
00:01:42 – they could be tempted into the workforce for the right opportunity, etc.
00:01:46 – Now, smart people disagree about how much of the declining labor participation
00:01:50 – is attributable to the economy but on its own
00:01:52 – that statistic does not tell us much about unemployment.
00:01:55 – For one thing the labor force participation rate will
00:01:57 – continue to decline as the population continues to age
00:02:00 – whether the economy is good or bad.
00:02:02 – But also if you're gonna claim that the real
00:02:04 – US unemployment rate is 38%
00:02:06 – that means back in 1967 it was 41%
00:02:09 – and that the lowest the US unemployment rate has ever been is 33% in 2000.
00:02:15 – So let's move on to actual measures of unemployment.
00:02:17 – Every month, the US Census Bureau surveys 60,000 households to find out how many people are out of work,
00:02:22 – and then on the first Friday of every month they release six different unemployment rates
00:02:26 – because nothing is ever easy, but for our purposes only four of them matter.
00:02:30 – First you have U3, which is the official unemployment number
00:02:33 – it includes all adults civilians that are without work and have looked for a job within the last four weeks:
00:02:38 – that's the number that is currently 4.7%
00:02:41 – Then you have U4, which adds in so-called discouraged workers; people who are without jobs
00:02:46 – but who have stopped looking for work because they don't believe there are any jobs they can get.
00:02:50 – Adding them in raises the current unemployment rate to 5%
00:02:53 – and then U5 adds in so-called marginally attached workers
00:02:56 – who are people who want to be in the work force but haven't recently sought jobs
00:02:59 – because they are taking care of family responsibilities or taking classes,
00:03:03 – and they bring the unemployment rate up to 5.7%
00:03:06 – and then lastly U6 includes people who work part time but want to be working full time.
00:03:10 – Including them brings the current unemployment rate up to 9.2%
00:03:14 – So which of these is the real unemployment rate?
00:03:16 – Well it depends on what you're trying to measure
00:03:18 – The U3 number is useful for one thing because it's closely aligned with international standards
00:03:22 – which allows us to compare our unemployment rate to that of other countries.
00:03:26 – Like in Brazil a similar measure has the unemployment rate at 12%,
00:03:29 – in Germany it's 4.1%, in Spain it's 19%
00:03:33 – But the U6 number is also useful because it helps us to understand how much so-called 'slack' there is
00:03:37 – in the labor market: that is how much room there is room there is for job growth
00:03:40 – As you can see U3 and U6 basically track together
00:03:44 – but there are slight differences, like the distances between U3 and U6 is currently slightly higher
00:03:49 – 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.
00:03:56 – The most important thing though is that when talking about our unemployment rate
00:03:59 – we can't compare oranges with grapefruits, and unfortunately
00:04:02 – that's happening a lot in our political conversations right now.
00:04:04 – You might hear for instance that at the height of the Recession
00:04:07 – unemployment was 10%, and now it's only down to 9.2%
00:04:10 – but that's mixing unemployment measures
00:04:12 – If the current unemployment rate is 9.2% it was 17% at the height of the Recession
00:04:17 – and if it was 10% at the Recession's peak it is currently 4.7%
00:04:21 – by either measure unemployment in the United States is lower than
00:04:24 – the average has been since World War Two but it's still somewhat higher than full employment.
00:04:28 – but of course that's only part of the picture because people don't just need jobs, they need good ones.
00:04:33 – On that front recovery from the Recession is probably still unfinished
00:04:35 – median household incomes are likely still lower than they were in 2007 although we don't have the final data for 2016 yet.
00:04:42 – So in summary no matter how you measure it, US employment is low
00:04:45 – but could be lower and median household income is rising, but not yet to all-time highs
00:04:50 – and if we could agree on these facts
00:04:52 – maybe we could move forward with the discussion about how to continue
00:04:55 – or even expand this economic recovery.
00:04:58 – Okay, not American Nerfighters, I'm sorry this was such an American video
00:05:01 – but we're having just a smidge of a political discourse crisis over here.
00:05:04 – Let me know in comments what non-American topics I could cover next week to make it up to you.
00:05:08 – Okay Hank, I'm off to go see the movie for 'Hidden Figures' for a second time
00:05:11 – because I liked it that much. Maybe also let me know in comments what your favorite Oscar-contending movies are
00:05:15 – my favorites are 'Hidden Figures' and 'Moonlight'
00:05:17 – Hank, thanks for keeping me employed all these years.
00:05:19 – I'll see you on Friday 🙂

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