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It’s Funny Because It’s True, Unemployment Rate Edition…

May 13th, 2013 · 3 Comments
Econ 101 · Just For Fun

I should have known that sending that sending Zach Weiner that copy of Mankiw would come back to bite me in the ass…

Given how the most widely cited unemployment rate is calculated, the cartoon is technically correct. On one hand, not counting people who are not in the labor force as unemployed makes sense- we generally see unemployment as a problem to be fixed, yet I doubt that the stay-at-home mom or the lottery winner sitting on a pile of cash rather than working is anyone’s policy target, so it makes sense to leave such people out of the discussion. That said, the way that unemployment statisticians ask the labor force question (“Have you looked for a job in the last four weeks?”) causes them to catch people who would want to work but have given up on finding a job in their out-of-the-labor-force net.

In order to overcome some of the misleading features of the typical unemployment rate, the Bureau of Labor Statistics also publishes a few other statistics that pertain to working versus not working. One is the labor force participation rate, which shows what percentage of people are either employed or looking for a job:

(Note that the scale of the vertical axis is a little misleading.) With these numbers, we can better understand whether changes in the unemployment rate were more due to people getting and losing jobs or people entering and exiting the labor force. (The labor force participation numbers also explain how we can see increases in both employment and unemployment or vice versa.) This historical data shows that labor-force participation has been declining a bit since recession hit in 2007 or so, which is consistent with the notion that people get discouraged and drop out of the labor force if they can’t find work for a long time.

A close cousin to the unemployment rate and labor force participation rate is the employment to population ratio (it’s exactly what its name implies), which the Bureau of Labor Statistics is also kind enough to publish:

Unlike the labor-force participation numbers, the employment to population ratio shows a sharp decline during the recession rather than a steady decrease over a number of years. Therefore, while it is true that the U.S. unemployment rate is rebounding, it appears to be settling at a place were a smaller portion of the U.S. population is working than before.

But wait- this is the part where I totally blow your mind…as it turns out, the Bureau of Labor statistics publishes a whole smorgasbord of unemployment rates in addition to the typical one. Check out the options:

  • U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
  • U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
  • U-3: Total unemployed, as a percent of the civilian labor force (official unemployment rate)
  • U-4: Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
  • U-5: Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
  • U-6: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

(I am obviously wrong, but I would like to believe that this is what Bono was thinking of when he named his band.) No one of these measures of unemployment is perfect on its on, but, taken together, they paint a pretty decent picture of what the labor market landscape looks like.

Tags: Econ 101 · Just For Fun

3 responses so far ↓

  • 1 Giovanni // May 23, 2013 at 6:13 am

    Bono was 16 when the “Boy” album hit major success, so back when choosing the name he was probably still out of the labour force definition :^) but maybe…

  • 2 Ken Ardon // May 25, 2013 at 2:55 pm

    The comic was OK, but Stephen Colbert did a really funny bit about discouraged workers a few years ago:

    http://www.colbertnation.com/the-colbert-report-videos/164056/march-17-2008/the-word—the-audacity-of-hopelessness

  • 3 Vince // Jun 8, 2013 at 1:25 pm

    Is there any good research on what the “natural” or desirable participation rate is? Could this have been a bubble at any point or is any drop a bad drop?

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