I was listening to a financial planning show on the radio. They
were talking about employment and used the term U6, which I didn’t recognize.
So I looked it up:
U3 is the official unemployment rate. U5 includes discouraged
workers and all other marginally attached workers. U6 adds on those workers who
are part-time purely for economic reasons. The current U6 unemployment rate as
of August 2016 is 9.7%.
The source provided a handy chart comparing these three
rates: U6 Unemployment Rate
I wondered whether the “as of August 2016” was what we got
by August 1st or August 31st—which would have come out last
Thursday or Friday. It looks like these are the latest, and the rates stayed
the same in August as in July.
The Bureau of Labor Statistics provides basic data and some
charts.
While I was thinking about employment this Labor Day
weekend, I came across a Prager University video describing in more real terms
what these numbers mean. Here's part of the transcript, but watch the whole thing below; it's only a minute and a half:
If someone has gotten so frustrated that
they’ve stopped looking for work… or just decided that they won’t work anymore,
they no longer get counted as unemployed.
So, imagine you had a town with 100
people, and 10 of them were unemployed and trying to find jobs. The
unemployment rate would be 10%. Make sense?
So now imagine if five of those people
got tired of looking for jobs and decided to move into their parent’s basement…
the government would now say that the unemployment rate has gone down to
5%. Yippee! Wait now…that doesn’t make sense.
The people in the basement are no
longer part of the labor force because they’ve given up… so the labor force
participation rate goes down too…
Not exactly a reason to celebrate.
So while the unemployment rate is
important, the labor force participation rate, which as you can see, tells the
real story.
The U6 number relates, in a way, to the Labor Participation Rate, but it probably tells a fuller story to look at both.
Labor Participation Rate is defined as the percentage of civilians age 16 and older who are in the labor force (gainfully employed), seasonally adjusted. (Calculation formula here.)
According to the Bureau of Labor Statistics, before the start of the Great
Recession in fall 2008, the rate was consistently around 66%. The recession
dropped it a percentage point, where it lingered for a year. Then it dropped
another point, where it stayed for two years. Then another point for a year.
And it has been under 63% for three years now, hanging at 62.8 the past two
months.
The Bureau chart only went back to 2006, and I wondered what
it was like leading up to that. So I found a chart going back to 1950 (below).
You have to go back to March 1978 to find that rate again.
Before that it was historically lower, in large part to more women staying
home.
It rose steadily until through 1989. Then it dipped a bit
until the late 1990s. After reaching a 2000 high of 67.3, it dipped and hung
around 66% until the Obama administration. From April 2009 it dropped steadily
until September 2015, reaching a low of 62.4. So we’re supposed to believe 62.8
is a return to the labor force.
I think we’re supposed to believe this is a new normal. This
is what the administration calls recovery.
Chart from FRED |
A few weeks ago I reviewed the typical parabolic shape of a
recession and recovery, and what I call the Trampoline Effect. If someone
interferes with the bounce, with some misguided intention of “helping,” the
result is taking the energy out of the expect bounce back up. I think the latest
employment numbers are just more evidence of interference preventing recovery.
The interferences we need to get rid of include Obamacare;
regulatory agencies doing lawmaking, prosecution, and sentencing;
environmentalist overreach; and an atrocious national debt. The list could go
on. Let’s pray we get a reprieve sometime soon.
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