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July 12, 2016

The REAL unemployment rate is close to 10%

Several years back our government changed the criteria historically used to report unemployment rates to make unemployment numbers and the administration look better. They conveniently decided to discontinue counting the underemployed, those who are working menial part-time positions because they cannot find full-time jobs. Additionally, the administration stopped including those who really want to work, but have grown so discouraged they just stopped looking for jobs. Why? Because those people no longer qualify for unemployment benefits.

Unaccounted in the official jobless rate are millions of people who still want a full-time job, but can’t find one in today’s unhealthy economy. It is difficult enough to address problem, but doubly difficult when that problem is being masked.

Jeffry Bartash recently wrote: “That excess level of what economists call labor-market “slack”—an impersonal way of referring to people desperate for work—is what gnaws at many officials at the Federal Reserve. Some are reluctant to raise interest rates until more of these people find their way into the workforce.

Buried in the monthly report is an unemployment rate referred to as U6, which includes part-timers who want a full-time job as well as would-be workers who have grown too discouraged to look for work.”

Unemployment U6-Chart

The article further explains, “The U6 measure is sometimes referred to as the “real” unemployment rate. And it still well above prerecession levels seven years after a U.S. economic recovery began.

In June, the U6 rate fell a tick to 9.6%, and it has fallen sharply from a peak of 17.1% in late 2009. In 2000, the U6 rate fell below 7%. Some 16 million people are underemployed or unemployed as measured by the U6.

The upshot: As many as 4 million in the U.S. who want a full-time work are being shut out. In a fully healed labor market they would be putting in 40-hour shifts.
That is not all the damage, either. This group of people also constitute a surplus of labor that helps to keep wages down for all U.S. workers. Companies feel less pressure to raise pay.
Until the U6 unemployment moves closer to 8%, it’s hard to argue the U.S. labor market has fully recuperated.”

If you really believe the unemployment rate is less than 5%, you probably believe inflation has been flat since 2008.  So, why do you think government purposefully understates these economic indicators?