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Reading BLS Unemployment Numbers

October 29, 2010

If job growth is a bellwether for the economy as a whole, the latest numbers from the Bureau of Labor Statistics send mixed signals.  September’s report, released last week, shows unemployment still stubbornly high, close to 10% nationwide, though varying by state: as high as 12% in California and 13% in Michigan, and as low as 4% in Nebraska and South Dakota.  Changes in state unemployment rates also vary.  The largest number of states showed unemployment trending downward, although 16 states showed no change at all and 11 states showed unemployment to be on the rise.

These figures refer to the official, or U3 unemployment rate used as the standard for government reporting.  Both economists and those out of work can attest that U3 unemployment – which only counts as unemployed those who are actively searching for work – becomes less relevant the longer a recession wears on, as those who have been out of work so long that they give up are no longer counted as unemployed, but rather “discouraged workers.”  Nor are those who have their hours cut from full time to part time counted.  The BLS calculates several measures of unemployment varying in the degree to which affected populations are included.  Using the broadest, U6 measure – which adds to the official unemployment figure involuntary part-time workers and those not looking for work – unemployment is currently as high as 17%.

Comparisons of different measures illustrate the degree to which official unemployment figures have been kept steady, despite continuing job losses, by those dropping out of the labor force.  Compared to the official unemployment rate, the U6 rate is rising more rapidly, up a full percentage point since September 2009.  U3, in contrast, has held relatively constant, rising only a tenth of a point from a year ago.

Labor economists describe a certain level of “frictional” unemployment as normal.  This describes unemployment accounting for those moving between jobs either voluntarily or without the expectation of long-term unemployment.  Like U3 unemployment, this becomes less relevant in a recession, as fewer people leave jobs voluntarily.

For this reason, incidences of massive job losses are sometimes a more meaningful measure of economic distress.  The BLS tracks incidences of mass layoffs as well.  The mass layoff report for the same month shows 133,379 workers put out of work due to large-scale employer actions as plant closings.  In this regard, the BLS has somewhat good news:  it is the third straight month of declining mass layoffs, and the lowest level since April 2008.  This could, however, be because the recession is simply running out of businesses  to close down, and any mass layoffs that might have occurred likely happened already. Workers, and politicians seeking reelection in November, hope that the latest figures are evidence of a recovery.  But however illustrative they are, they can’t predict the future.

Michael Paarlberg

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