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Posts tagged with: "U2RATE"

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Most unemployment measures are declining…

...while long-term unemployment is still rising

Many of us follow the unemployment rate closely, even more so since the pandemic began. But there are many definitions of unemployment, which depend on how people are attached to the labor force. To learn more, see this earlier blog post and this conversational account of unemployment measures.

Today’s FRED graph shows the recent evolution of 6 measures of unemployment. All increased dramatically, but not uniformly: The lines didn’t move in a parallel fashion—that is, the distance between them didn’t remain constant. Rather, the lines fanned out, showing that it wasn’t one particular type of unemployment that was responsible for the overall surge.

One detail worth noting, though, is that the long-term unemployed, which by definition take some time to accumulate, are still increasing, while all other unemployment groups are decreasing.

As of August, the long-term unemployed made up 5.1% of the labor force. And if the long-term unemployment rate stays high, the general unemployment rate must stay high, too. If the previous recession is any indication, reducing long-term unemployment may take a long time. Adjust the graph sliders to include the time period of the previous recession, and you’ll see what we mean.

How this graph was created: From the Alternative Measures of Labor Underutilization release table (A-15) from the Bureau of Labor Statistics’ Employment Situation release, select all (seasonally adjusted) series and click “Add to Graph.” Adjust the sample period as you wish.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: U1RATE, U2RATE, U4RATE, U5RATE, U6RATE, UNRATE

What is unemployment?

There is more to it than not working

What is unemployment? To answer this question first requires a few definitions. A person is considered unemployed if he or she is actively seeking work and willing to take work here and now. It is therefore not sufficient to simply not be working. But this definition of unemployment does necessarily define (1) whether someone who is underemployed should be counted as well or (2) how intensely someone must search for a job to qualify as unemployed. For this reason, the Bureau of Labor Statistics provides different unemployment rates, graphed above. These are commonly called U-1 through U-6:

  • U-1 counts only those who have been unemployed for at least 15 weeks, which was traditionally a little longer than the average duration of an unemployment spell. This is considered to exclude short-term unemployment.
  • U-2 counts those who are unemployed because they have lost a job or completed a temporary job—in other words, workers in a precarious situation in the labor market, as they are more likely to find an unstable or unsatisfying job.
  • U-3 is the headline unemployment rate generally reported in the media: People who are able to work, ready to work, and have looked for work in the past four weeks. This corresponds the most closely to the definition of unemployment we started with.
  • U-4 is U-3 plus those who would like to work but have stopped looking—the so-called discouraged workers—because they believe there are no jobs for them.
  • U-5 is U-4 plus those who are marginally attached to the labor market who, for any reason, are no longer searching for work but may still work.
  • U-6 is U-5 plus those who are working part-time but would prefer to work full-time.

These various interpretations of the definition of unemployment allow us to have a better understanding of the status on the labor market. But one may still have some misgivings about them. For example, the higher-numbered definitions give equal weight to different classes of unemployed workers. For example, should a person qualifying for U-1 count as much as a person qualifying only for U-5 and U-6 when evaluating the health of the labor market? To address this question, there is the Hornstein-Kudlyak-Lange index that creates a weighted sum of the different categories. The goal is to evaluate the underutilization of labor in the economy. This index (it is available with and without the part-time workers from U-6) is plotted below along with the popular U-3.

The graph below shows the non-employment rate, which is quite different from the unemployment rate. Indeed, it counts all those who are not part of the labor force, which comprises those who are either working or unemployed. The non-employment rate, which is thus the complement to the labor force participation rate, measures those who do not want to work. Principally, these are retirees, students, people with various handicaps, people who dropped out of the labor force, and people who do not want to work. Note that military personnel are not part of any of these (civilian) calculations.

How these graphs were created: For the first graph, go to the Alternative Measures of Labor Underutilization release table from the Bureau of Labor Statistics’ Employment Situation release. Select all (seasonally adjusted) series and click “Add to Graph.” For the second graph, search for and select the monthly, seasonally adjusted unemployment rate. Then click on “Edit Graph” to add the two other lines: Search first for “non employment index” and select the base index (not the index that includes people working part-time for economic reasons). Then search for “non employment index” again and select the index that includes people working part-time for economic reasons. For the last graph, search for “labor force participation rate”, click on “Edit Graph” and apply formula 100-a.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CIVPART, NEIM156SFRBRIC, NEIPTERM156SFRBRIC, U1RATE, U2RATE, U4RATE, U5RATE, U6RATE, UNRATE

The many flavors of unemployment

How many people are unemployed? Before answering this question, you need to define unemployment. The Bureau of Labor Statistics offers six definitions, conveniently labeled U-1 through U-6, that are increasingly inclusive. What they have in common is they measure some aspect of labor underutilization. U-1 counts only those who have been unemployed for at least 15 weeks, which is usually (but not lately) a little longer than the average duration of an unemployment spell. Hence, this excludes short-term unemployment. U-2 uses a somewhat different concept: the percentage of those who are unemployed because they have lost a job or completed a temporary job. Some of them may be included in U-1. So U-2 counts workers in a precarious situation in the labor market, as they are more likely to find an unstable or unsatisfying job. U-3 is the traditionally reported unemployment rate, which counts people who are able to work, ready to work, and have looked for work in the past four weeks. U-4 takes U-3 and adds those who would like to work but have stopped looking—the so-called discouraged workers—because they believe there are no jobs for them. U-5 takes U-4 and adds those who are marginally attached to the labor market: those who, for any reason, are no longer searching for work. Finally, U-6 includes all of the above plus those who are working part-time but would prefer to work full-time.

How this graph was created: Go to the Alternative measures of labor underutilization release table (A-15) from the Bureau of Labor Statistics’ Employment Situation release. Select all (seasonally adjusted) series and click “Add to Graph.”

Suggested by Christian Zimmermann

View on FRED, series used in this post: U1RATE, U2RATE, U4RATE, U5RATE, U6RATE, UNRATE


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