The Blog

The Real Unemployment Rate Is High... and Rising

Since job creation is painstakingly slow and Republicans are and will be blocking all attempts to fund or create jobs, it will take years before there are enough jobs for all those that want to work.
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The September's BLS Employment Situation report showed that 95,000 jobs were lost but the unemployment rate remained steady at 9.6 percent in September. How can so many jobs be lost and the unemployment rate remain the same? The BLS reported that 175,000 people left the labor force in September. So while 95,000 jobs were lost, there were 175,000 less people in the labor force looking for jobs, which kept the unemployment rate steady. People generally drop out of the labor force when there are fewer jobs available.

Economists often cite the number of jobs created by the private sector as an indicator of job market strength. In September, the private sector created 64,000 jobs, which was less than forecast. Job loss in the government sector was a whopping 159,000 as state and locals governments battled with deficits, decreasing tax bases, and unmet pension obligations. Private sector job growth won't be robust going forward since fewer people are working and as a result those unemployed will purchase fewer goods and services, putting profits under pressure.

The U.S. needs to create about 150,000 jobs a month to simply break even with workforce population growth, so when you consider that 95,000 jobs were lost last month and 150,000 need to be created, there was a shortage of at least 245,000 jobs in the month of September.

The unemployment rate that is released by the BLS, propped by media and most politicians is the U3 rate, which stands at 9.6 percent for September. The U3 rate is the best case scenario when it comes to reporting unemployment because it doesn't include discouraged workers (those who have stopped looking for work for a specific period of time) and the underemployed (those that are working part-time, but want full-time work).

When both discouraged workers and the underemployed are considered in the unemployment rate, you end up with the U6 rate, or the "real" unemployment rate. For September, that rate increased from 16.7 to 17.1 percent.

According to the BLS:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose by 612,000 over the month to 9.5 million. Over the past 2 months, the number of such workers has increased by 943,000.

Could many of these additional underemployed be 99ers -- the unemployed who have exhausted all unemployment benefits -- grabbing a part-time job? That's a possibility, but it also includes workers whose hours were cut and others who want full-time work, but settle for part-time work.

While the 17.1 percent underemployment rate seems bad enough, it's based on seasonal adjustments.

Over the year, the size of the Nation's labor force, the levels of employment and unemployment, and other measures of labor market activity undergo sharp fluctuations due to seasonal events including changes in weather, harvests, major holidays, and the opening and closing of schools... In evaluating changes in a seasonally adjusted series, it is important to note that seasonal adjustment is an approximation and initial adjustment must be based on experience.

Gallup, on the other hand, doesn't use seasonal adjustments in its underemployment reports. As a result, according to Gallup, the September underemployment rate was 18.6 percent.

Certain groups are faring worse than the national average. Thirty percent of Americans aged 18 to 29, twenty-four percent of those with no college education, and 22% of women are underemployed so far in September.

But when it comes to the real unemployment rate, John Williams of paints an even bleaker picture with an underemployment rate of near 23 percent.

John Williams includes long-term discouraged workers, who "were defined out of official existence in 1994," to arrive at his underemployment estimate.

All three underemployment reports show a depressed job market that seems stuck at best in neutral, unless you need a survival part-time job.

Since job creation is painstakingly slow and Republicans are and will be blocking all attempts to fund or create jobs, it will take years before there are enough jobs for all those that want to work. The US lost 8.5 million jobs in 2008/2009 and the private sector has created about 800,000 jobs so far in 2010. At that rate of job creation, it will take about 8 years to return to full employment.

Job creation is a necessity and extended unemployment benefits are required until jobs are more plentiful.