Monday, October 8, 2012

Unemployment rate is 7.8%? Yeah, right – why the real rate is 17.45%

President Obama and his supporters have been celebrating because the “unemployment rate” (U4 rate) is “down” to a supposed 7.8% - “the same” as when he took office. There’s only one problem – it isn’t the same. In fact, the real unemployment rate is much higher.

First, let me explain why the 7.8% rate recorded in Jan. 2009 is not the same as the 7.8% rate recorded in Sept. 2012.  The issue is that the workforce has shrunk by over 5 million workers since 2009 – instead of growing as one would expect in a healthy economy. These are people who have simply given up and are not counted in the commonly quoted U4 unemployment rate. Many of these workers will reenter the workforce if there is a recovery – so they really have to be factored in. If these workers were counted in the U4 rate, it would be 2.75% higher. So instead of just “breaking even” the “real” U4 rate is 10.05%.  Another implication of this just how many jobs have been lost in Obama's first three and a half years: 5 million.

But there is another problem. Millions of people who really need to work full time, have only been able to find part time work. The folks are often called the “underemployed”. Fortunately, government statistics do count these people in another number called the U6 unemployment rate – which is the U4 rate plus the underemployment rate. The September U6 rate? A shocking 14.7%.

So, the real unemployment rate is the 14.7% U6 rate, plus the adjustment for the 5 million plus workers who have dropped out is 17.45%. That’s right, nearly one in five American workers is unemployed or underemployed. Too bad the most of mainstream media will simply mention the 7.8% figure as if it is the whole story – because it isn’t.

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