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There’s more to the story than headline unemployment

Earlier this month, the Bureau of Labor Statistics reported September’s unemployment rate was 4.2% and the number of unemployed persons decreased by over 300,000. Does that mean every one of those 300,000 individuals found a job? Many Americans view decreases in unemployment positively, but there’s more to the unemployment story than just the headline. The reported unemployment rate is a proportion of members of the civilian labor force who have actively but unsuccessfully searched for a job in the past four weeks. This measure is frequently criticized for ignoring two segments of the population: those who have given up searching for work (i.e., discouraged workers) and those who would accept a job if offered one but aren’t actively searching (i.e., marginally attached workers). Moreover, those working part-time are counted equally in employment data as those working full time, regardless of what they’d prefer.

Because the BLS understands the shortcomings of the headline rate, they record unemployment data for all these groups and release six different measures of unemployment. The graph shows some of these measures for the state of Missouri. The teal line on the bottom shows the headline unemployment rate, and the green line adds the percentage of discouraged workers. Notice that the number of discouraged workers increases after a spike in the headline rate. While headline unemployment reached a peak in the first quarter of 2010, the number of discouraged workers was highest throughout 2011 and 2012, reaching 1.3%. The increase in individuals not actively searching for a job indicates some of the social costs of unemployment: pessimism toward the labor market and a pervasive belief that jobs are increasingly difficult to find, causing workers to stop searching for jobs in the first place. This collective shift may take years to improve, explaining the delayed yet sustained increase.

The measure shown by the dark line includes the percentage of marginally attached workers but does not include discouraged workers. This category includes individuals who have searched for a job in the past 12 months, but not in the past four weeks. This measure of marginally attached workers as a percentage of the whole remains fairly consistent over time. The final segment of the unemployed population, shown by the blue line, adds the percentage of individuals employed part-time for economic reasons: They desire a full-time job, but work fewer than 35 hours per week. We expect the proportion of these individuals to increase during times of economic downturn as employers may cut hours before firing employees. However, the percentage is highest in the second quarter of 2010, at 5.4%, and not earlier in the Great Recession. Reasons for this delay may be economic uncertainty and the possibility of workers on contracts that delay employers’ responses. Furthermore, many workers may have been satisfied with a part-time job during the Great Recession, but then began reporting their part-time work as involuntary as the recovery started and the outlook improved.

How this graph was created: Search for “unemployment in Missouri” and select the seasonally adjusted series. From the “Edit Graph” tab, click “Add line” and search for “unemployed plus discouraged Missouri” and select the relevant series. Add a third line and search for “unemployed plus marginally attached Missouri” and select the series. Finally, add a fourth line and search for “unemployed plus part-time Missouri.” Change the start date to 01-01-2004.

Suggested by Maria Hyrc and Christian Zimmermann.

View on FRED, series used in this post: MOUR, U4UNEM4MO, U5UNEM5MO, U6UNEM6MO

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