A reader of this blog recently asked an important question: what do I think is the actual unemployment rate in the US today, not the media’s 3.8% that is almost always quoted. Here’s my reply as to why I calculate the real, actual unemployment at minimum to be 10%-12%.
“The real unemployment rate is probably somewhere between 10%-12%. Here’s why: the 3.8% is the U-3 rate, per the labor dept. That’s only for full time employed. What the labor dept. calls the U-6 includes what it calls discouraged workers (those who haven’t looked for work in the past 4 weeks. Then there’s what’s called the ‘missing labor force’–ie. those who haven’t looked in the past year. They’re not calculated in the 3.8% U-3 unemployment rate number. Why? Because you have to be ‘out of work and actively looking for work’ to be counted. The U-6 also includes what the labor dept. calls involuntary part time. But it should include the voluntary part time as well, but doesn’t (See, they’re not actively looking for work even if unemployed). But the involuntary part time is itself under-estimated. It counts only those involuntarily part time unemployed whose part time job is their primary job. It doesn’t count those who have second and third involuntary part time jobs. The labor dept. also misses the 1-2 million workers who went on social security disability (SSI) because it provides better pay, for longer, than does unemployment insurance. That number rose dramatically after 2009 and hasn’t come down much (although the government and courts are going after them). The way the government calculates unemployment is by means of 60,000 monthly household surveys but that survey also misses a lot of workers who are undocumented and others working in the underground economy in the inner cities (about 10-12% of the economy according to most economists and therefore potentially 10-12% of the reported labor force in size as well. The labor dept. just makes assumptions about that number (conservatively, I may add). But it has not real idea of how many undocumented or underground economy workers are actually employed since these workers do not participate in the labor dept. phone surveys, and who can blame them. The SSI, undocumented, underground, etc. are what I call the ‘hidden unemployed’.