Unemployment Rate Deception

Labor markets are looser than the official rate suggests

by Eoghan Stafford

Dollars and Sense magazine, September/October 2003

When June's dismal unemployment data came out (at 6.4%, the official unemployment rate hit its highest level in nine years), the administration was quick to put a positive spin on the news. "While the unemployment rate is disappointing," Labor Secretary Elaine Chao reassured us, "it can be viewed as an indication of renewed confidence in the economy with the increased labor-force participation rate." In other words, the jump in unemployment reflects renewed optimism among the jobless-or so the administration would have the country believe.

The key to understanding Secretary Chao's statement lies in the way unemployment is figured. The official unemployment rate, as calculated by the Bureau of Labor Statistics (BLS), includes only jobless people who have looked for work in the previous four weeks-the unemployed who are "in the labor force." The BLS considers people who want jobs but don't have them and who have sought work in the past year but not in the past month to be "marginally attached" to the labor force, whatever their reason for not looking. Those who give an economic reason (for example, they were previously unable to find work in their field, they feel they need more training, or they suffered discrimination in hiring) are considered "discouraged workers," a subset of the marginally attached.

Secretary Chao suggests that official unemployment increased because the labor force increased; some of the marginally attached felt optimistic enough about their prospects to take up new job searches. But this would be cause for optimism only if the increase in the labor force (up 611,000) coincided with a decline in the number of the marginally attached. In actuality, the ranks of the marginally attached increased by about 40,000 between May and June. In addition, during that same period, another 444,000 people began working part-time despite wanting full-time work.

The secretary's attempt to spin the news inadvertently points to a yet larger issue: The official unemployment rate actually understates the extent of unemployment. A more realistic unemployment rate-one that includes the marginally attached-is shown in Table 1. Counting all marginally attached individuals (discouraged workers plus the rest of the marginally attached) as unemployed brings June's unemployment rate up to 7.3%. If those working part-time involuntarily are added (by counting them as unemployed-the BLS considers them employed), the figure climbs to 10.5%. In total, the government's official measure of unemployment disregards nearly 7 million people who are unemployed or underemployed. (The tables are based on July 2003 BLS data.)

The administration's downplaying of the scale of unemployment is matched by its silence about the effects of the economic downturn on workers of color. Although both white and black workers entered the labor force in June, Whites gained jobs overall, while black workers lost jobs (despite searching for positions in growing numbers). (See Tables 2 and 3.) Racial inequity in the job market is nothing new. Over the past decade, the unemployment rate among African Americans was always more than double that of Whites. (See Table 4.) In the boom year of 1998, African-American unemployment was worse than white unemployment in the recessionary year of 2003. Today African-American unemployment has reached crisis proportions at 10.8%-and that's just the official rate.

Common sense might tell you that the millions of jobless and underemployed workers, huge gaps in the employment prospects of different races, and a swelling pool of jobless disenfranchised youth call for urgent reform.

But judging by its complete silence on these issues, the administration appears not to think so-or not to care.

Eoghan Stafford was a Dollars & Sense intern this summer.

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