real unemployment in US may be as high as 8.7%,, Report from Boston Federal Reserve Bank Options

[Steven Hill]

Unemployment really as high as 8.7% -- Boston Fed

A report by economist Kathrine Bradbury of the Boston Federal Reserve Bank suggests unemployment is much higher than Labor Dept statistics report, due to lack of rebound in labor force participation. This would help explain why real wage growth is stagnate, though we are supposed to be at "full employment" (i.e. 95%).

U.S. jobless rate understated, study says
Labor force participation rates have not rebounded
By Rex Nutting, MarketWatch
Last Update: 2:56 PM ET July 15, 2005


WASHINGTON (MarketWatch) - The current low U.S. unemployment rate probably understates the true level of joblessness by 1 to 3 percentage points, the senior economist at the Boston Federal Reserve says.

Millions of potential workers who dropped out of the labor force during the recession four years ago have not returned as expected and are thus not counted in the official unemployment statistics, said Katharine Bradbury in a paper published by the Boston Fed. Read the study.

The jobless rate fell to 5% in June the lowest level since the terror attacks of September 2001.

Labor force participation rates "have not recovered as much as usual and the discrepancies are large," she wrote.

"Current low rates of labor market participation thus potentially represent considerable slack in the U.S. labor market," she wrote.

While the official unemployment rate has fallen from a peak of 6.3% in June 2003 to 5% in June 2005, the labor force participation rate remains close to 15-year lows of 66%.

Typically, labor force participation rates rebound sharply following recessions, Bradbury found.

The official jobless rate understated the severity of the slowdown in 2001 and has overstated the strength of the recovery since then, she said.

Government unemployment statistics are calculated by asking adults who aren't working if they'd like to work and if they've actively looked for work. Only those who are working or looking are considered in the unemployment rate calculations.

Crunching the numbers

The unemployment rate is derived by dividing the number of people who are unemployed (and looking) by the number of people in the labor force.

The labor force participation rate is calculated by taking all those working or looking for work and dividing by the total adult population.

The labor force participation rate has changed dramatically over the past 40 years as more women entered the workforce and more teenagers and young adults continue their education. At the same time, participation rates for adult men declined, as more took early retirement and disability benefits improved.

In 1965, only about 59% of all adults were in the labor force. By 1996, the figure had risen to 67%. When the recession began in March 2001, the participation rate was 67.2%.

All of the improvement in participation rates during this recovery has come from people over 55, as more relatively healthy Baby Boomers enter this cohort. At the same time, participation rates for teenagers have fallen to 44% after averaging more than 50% during the 1990s boom.

If labor force participation rates had improved as much during this recovery as typical, between 1.6 million and 5.1 million more people would be in the labor force, Bradbury concluded.

If those people were counted in the labor force but not working, the jobless rate would have been somewhere between 6.5% and 8.7%, rather than the 5.4% reported by the Labor Department in the three months from November 2004 to February 2005.

"An 8.7% unemployment rate would represent considerable slack in the labor market," Bradbury said.

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Real US unemployement rate 18.Jul.2005 07:14

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Philippe Orlando philippe.orlando@gmail.com link


The US unemployment rate is close to 10%. The way the US counts employed people is dishonest and ridiculous. SOmebody employed part time at Burger King making $ 7.00/hours is NOT counted among the unemployed. We're talking about less than 8000 bucks a year. Sure that person is employed, but where is he going? Let's say the poor bastard has two part time job. We're talking now about a whooping 16000/year Holly cow, it's abundance! Does a part time at Wall Mart at 8 bucks an hour is being employed? Come on? The US has a huge army of people working at a miserable wage. This is unemployment in disguise. Trust me, the real number are comparable to Western Europe, between 8-10%.


Good Point 18.Jul.2005 09:55

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Anarchy-nonymous link


It's a slightly different issue, but you are exactly right. What is the real measure of poverty in America today? Currently we are still using a formula that was developed in the mid-50s to measure poverty. In 2005, that formula basically says that poverty means less than roughly $17,500 per year for a family of four! The problem with that formula is that it still considers food as the largest budgetary expense, as it was in the 1950s. The proportion of costs associated with housing has expanded from about 20% in the 50's to about 50% of the average budget today.

Different academics have tried to make various adjustments to the offical poverty metric by incorporating the the relative changes in costs of living since the official poverty level was established. Some courageous scholars have estimated the number of American's living in poverty under such a revised metric is actually around 30-35% of the U.S. population.


prisoners not counted in unemployment rate 18.Jul.2005 12:36

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misto link


A French scholar, Marie-France Toinet, used to comment that our high incarceration rates would add percentage points to our unemployment rate. This in addition to our idiotic way to determine the official "unemployment" rate...