RALEIGH – If you ever thought measuring the unemployment rate were a simple matter of comparing the number of those who lack jobs to the general population, the confusing array of news stories and political claims about last week’s jobless-rate announcement should have settled the question for you.
In reality, measuring unemployment is a complicated process. When politicians and activists of all stripes try to turn it into a political exercise, truth gets lost.
When the news broke that the nation’s unemployment rate had fallen last month to 8.6 percent, down from 9 percent, most of the media coverage was nuanced – that is, if you read or watched all the way until the end of the story, you discovered both that the economy added a net of 120,000 jobs in November and that this number is relatively low and far exceeded by the 300,000 discouraged Americans who stopped looking for work altogether.
Was the announcement good or bad for President Obama and other political incumbents? It was good if you looked at the headline number alone, the drop to 8.6 percent unemployment. But it wasn’t so good if you looked at the underlying statistics and trends.
Let’s get more specific. That “headline number,” the unemployment rate released every month, is technically known as the U-3 measure. The Bureau of Labor Statistics actually computes six different measures of U (unemployment). They are numbered 1 through 6, in order of increasing breadth. BLS computes all six measures on a quarterly basis for the nation as a whole as well as for states, regions, and localities.
Because month-to-month changes in employment are subject to significant influence by data corrections, sampling errors, and fleeting trends, it sometimes makes sense to examine these data by rolling averages. Here’s a rundown of the six different measures and the most recent annual counts for North Carolina and the nation.
The U-1 measure is a count of long-term unemployment. It consists of the number of persons out of work for 15 weeks or longer, divided by the number of people who are employed or actively seeking employment, otherwise known as the civilian workforce. In North Carolina, the average U-1 rate from the 4th quarter of 2010 to the 3rd quarter of 2011 was 6.5 percent, vs. 5.4 percent for the nation as a whole.
The U-2 measure is a count of persons who have either lost their preexisting jobs or completed temporary jobs, divided by the civilian workforce. So this measure would not include new entrants to the workforce who are seeking their first jobs, for example, or those who left their last job voluntarily. North Carolina’s average U-2 rate for 2010-11 was 6.6 percent, vs. 5.5 percent for the nation.
The U-3 measure is the one we usually think of as the unemployment rate. It consists of the number of persons who are unemployed for any reason (laid off, left voluntarily, first-time job seekers, etc.) and are actively looking for work, divided by the civilian workforce. North Carolina’s average U-3 rate for 2010-11 was 10.5 percent, vs. 9.2 percent for the nation.
The U-4 measure takes the U-3 measure and adds in discouraged workers – those who might well have been in the U-3 group at some point but have at the present time stopped looking for work because they doubt their ability to find a job. U-4 adds the number of discouraged workers to both the numerator and the denominator of the fraction, so the latter is now the civilian workforce plus discouraged workers. North Carolina’ average U-4 rate for 2010-11 was 11.2 percent, vs. 9.8 percent for the nation.
The U-5 measure takes the U-3 measure and adds in a broader category called “marginally attached workers.” This category includes not just the discouraged workers from U-4 but also persons who have temporarily given up their job search for reasons other than pessimism – for example, to gain additional training, to take care of a relative, or to undergo a medical procedure. As was the case for U-4, the U-5 measure adds marginally attached workers to both the numerator and the denominator. North Carolina’s average U-5 rate for 2010-11 was 12 percent, vs. 10.7 percent for the nation.
Finally, the U-6 measure takes U-5 and adds yet another category to both ends of the fraction: the “involuntary part-timers,” the persons who are currently working part-time but would work full-time if they could. North Carolina’s average U-6 rate for 2010-11 was 17.9 percent, vs. 16.2 percent for the nation.
No matter how broad you measure it, North Carolina’s job market has looked a lot worse than the nation’s for many years. But I think it’s valuable to study a range of measurements, not just the one that gets the headlines.
Hood is president of the John Locke Foundation.