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Unemployment: What the Government Doesn’t Tell You

One of the key indicators of the state of the economy is the number of individuals who are part of the work force, but who are currently unemployed. This number is crucial to the health of the economy because it is the employed who are capable of paying their bills and spending their dollars at retailers. This money, in turn, goes to the companies who wholesale the products being purchased, who then pass a portion of that money on to the manufacturers. Common knowledge, right?

But, there are several key factors that are neglected when the unemployment figures are discussed. I will expose those critical factors in this article. First, let’s talk about some general unemployment concepts.

A healthy economy will always have some unemployment since there will never be a point when all workers are employed 100% of the time. Some workers will get fired and others will leave their employment for a variety of reasons, whether to go on maternity leave or simply because they don’t like their job and quit before getting a new one. At the same time, there is no shortage of students entering the work force out of high school or college and many retirees are even having to go back to work to make it through their retirement. So, there is a natural ebb and flow of workers both leaving their jobs and entering the work force.

But what should the unemployment rate be and what is healthy for the economy? According to a CNN Money report from February 11, 2008: “…the 4.9% unemployment that we have now still reflects a relatively tight labor market,” said Edward Lazear, Chairman of the Council of Economic Advisors, during a news brief. He also said “even if we go with the most aggressive notion of what is a high unemployment rate—5.7%—we’re still quite away from that right now.” [1]  But here we are two-and-a-half years later and the official unemployment rate last month, August 2010, was 9.6% according to the U.S. Department of Labor Statistics.[2]  That is nearly double what it was just over two short years ago and what Mr. Lazear declared would be a high unemployment rate. According to most economists, a healthy economy should have a constant unemployment rate in the 4% to 5% range.

But, as Paul Harvey, the legendary syndicated commentator often said, “Here’s the rest of the story.” The Department of Labor Statistics calculates the rate of unemployment based on six different criteria, which are noted on their forms appropriately labeled U-1 to U-6. The “official unemployment rate” comes from form U-3, which includes “total unemployment as a percentage of the civilian labor force.”[3] It does not include those who want to work but are no longer looking for work, and it does not include those who want to work full-time but are only working part-time because they cannot find full-time work.

If you want to know the unemployment rate that includes those individuals, you have to look at form U-6, one that you never hear discussed in the political world. Form U-6 indicates that the unemployment rate was actually a staggering 16.7% in August 2010. Moreover, according to a Gallup Poll that calculated unemployment and underemployment, the real unemployment in August 2010 was actually 18.4%, which is down from its peak of 20.4% in April 2010![4] And neither of these statistics count anyone who has been unemployed for more than twelve months and has given up looking for work! This may very well place the true unemployment rate well over 20%.

What does this mean to you? Well, if you have a job, be thankful. If you’re thinking of changing jobs, make sure you get a new one first. And if you’re retired, just remember that nearly one out of five individuals who are supposed to be contributing to your Social Security are unemployed; they’re not only not contributing, they’re collecting Social Security. It may be called “unemployment,” but the checks still come from the U.S. Treasury.

References


1.  http://money.cnn.com/2008/02/11/news/economy/economic_outlook/index.htm?postversion=2008021116

2.  http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

3. www.bls.gov/news.release/empsit.t15.htm

4. www.gallup.com/poll/141770/underemployment-steady-july.aspx