Last week, the November job report was released, which showed that unemployment had dropped to 7.7%, the second month in a row of .2 percentage point decline. Despite fears that super storm Sandy would impact the data, the Bureau reported that data from the affected areas were within the normal ranges.

As we do every month, we dig deeper into the data to get a better sense of the national employment situation.

1)       Workforce Participation Rate Drops back to 63.6%

After 3 months of positive gains in this all too crucial statistic, November saw the participation rate drop by .2 percentage points. As mentioned last month, the rate has fluctuated between 63.5 and 63.9 for all of 2012. With the exception of earlier this year when the rate hit 63.6%, the last time that workforce participation rate was this low was 1981. Given the depth and duration of the current economic malaise, some of the initial signs of recovery will be found in this data point. As people who have left the workforce, believing there are no jobs become more optimistic about their job prospects, rejoin it, driving the rate higher. After this month’s drop, there is not data to suggest that this is the case yet.

2)      The number of people unemployed dropped but more than 200,000, but….

The drop of just over 200,000 from the ranks of those considered unemployed is in part, what caused the unemployment rate to fall to 7.7%. However, as is with most of these data points, there is a caveat. While some certainly found employment, (household data shows a loss of 100k jobs while the more accurate establishment data shows 140k created), the civilian labor force shrank by 350k and those not in the labor force but seeking employment rose by 230k. Did those 200k get jobs or did they just drop out of the workforce? It is impossible to say with any certainty which it is, but the drop in the civilian labor force lends support to the idea that a good portion left the workforce.

3)      U-4 to U-6 Rates are mirroring the official rate decreases

While this is an encouraging move, as noted in an earlier piece, there has been a massive disconnect between the wider measures of unemployment and the official rate. Were a recovery fully underway, the U-4, U-5, and U-6 rates would be falling at a rate faster than the official rate to return to pre-recession norms rather than just mirroring the decrease.

The Revised Rate: (Methodology)

Taking into account workers no longer in the work force, but would like a job, the unemployment rate for November would be: 9%, the same it was in October.

Today the Bureau of Labor Statistics released the October Unemployment Report, the last report before the general election on November 6th. The report showed an uptick in the overall rate from 7.8% to 7.9%. As with every month, we delve into the numbers not commonly reported in the media, to get a better understanding of the employment situation.

1)      Workforce Participation Rate edges up .2 to 63.8%

There are two ways to read this data point, the first of which is that the rate has fluctuated between 63.5 and 63.9 for all of 2012. So while edging up slightly is a good thing in terms of the economy at large, it doesn’t show any really improvement. Essentially the labor market is in neutral.

The other way to read it, is that it is a sign of improvement as this is the second month in a row that the Participation Rate has increased. While it is certainly possible that this is an indicator that a recovery is starting, there are two points that are cause for concern. Early 2010 saw the same magnitude of growth, albeit over 3 months with a plateau in the middle. This slight improvement however was followed a slide that continued until this year. In addition, as mentioned above, 63.8% is still within the range seen for all of 2012.

There is too little data to make the argument that the job market is recovering, based on this data point alone. Were it to move 64.0 and experience sustained growth getting there, then the argument could be made, but with the available data it cannot.


2)      Household Data shows number of Unemployed Increased by 200,000,

Despite the number of jobs added to the economy, the number of people considered to be unemployed actually jumped by 200,000, although this number seems to be related to some discouraged workers re-entering the labor force. Coincidentally the number of people not in the labor force, but would like a job also dropped by 200,000. While it is improbable that these groups of 200,000 are completely one in the same, it stands to reason that there is at least some amount of overlap.


3)      Household Data shows number employed increased by 400,000 but Establishment Data shows 171,000 jobs created. What is the disconnect?

Last month the Bureau of Labor Statistics came under fire for reporting that the number of employed had jumped by nearly 800,000, an unrealistic number given the state of the economy. While some have charged that it was politically motivated, the more likely answer was a statistical fluke in the data. Fluke or not, it is indirectly used to calculate the unemployment rate, which resulted in the surprise drop in September.

Likewise for October, it seems unlikely that 400,000 were added, given the state of the economy. Putting that figure into question even more so is the disconnect with the Establishment Data, which showed an increase of 171,000 jobs. The cause of the gap is two-fold, one is that the Household data is a smaller sample, resulting in a higher margin of error and that the number employed also counts part-time, non-benefit providing jobs. For these reasons it is the Establishment Data number cited in media reports for total jobs numbers.


The Revised Rate: (Methodology)

Taking into account workers no longer in the work force, but would like a job, the unemployment rate would be: 9%, down from 9.1% in September.

Josh Elliott-Traficante

October 2012

The official unemployment rate has come under fire as of late. The past year has given rise to the charge by many that the unemployment rate under represents the true state of unemployment. Many have cited the U-6 rate which is currently around 14.0%. (For a description of the different rates, click here) The recent drop in the unemployment rate to 7.8% in September brought charges of manipulation for political motives.

While it seems highly unlikely that the Bureau of Labor and Statics is deliberately ‘cooking the books’, there is something to be said about the under representation of the true state of unemployment. This is not to say that the Bureau is doing this on purpose, but rather it is a symptom of the sluggish recovery that is not captured in the data. (For an explanation of the disconnect click here.)

As the recovery of the past two years has only been tepid, at best, a number of individuals have dropped out of the workforce entirely, because they think that they cannot find work, so they do not bother trying. Under the current method of calculating unemployment, these people do not exist. Despite not being counted, they are still unemployed.

However, there is a way to capture these group and project what the unemployment rate would be, were they counted as unemployed. Using historical baselines, thereby only counting those not in the workforce due to the recession, it is possible to calculate the unemployment rate if they were included. When this is done, the unemployment rate for September would be 9.0%.

Below is a chart comparing the revised rate to the official unemployment rate:

The difference between the two rates grows slowly, albeit steadily as the recession began, only to widen drastically by early 2009. As the recession bottomed out and the slow recovery began, this spread has grown only wider to the current 1.2% point spread in the September data.

Though there is some wiggle room in the revised rate (see Methodology below), this is decently accurate way of incorporating those not in the work force, for reasons realistically attributable to the recession, into the unemployment rate.




In addition to counting those no longer in the workforce, the BLS also counts those no longer in the workforce, but want a job. Currently this subset stands at roughly 6.7 million. Looking back at the historical data, we find that even in good times there are people who fall into this category, for whatever reason.

The running average for this group of people between 2000 and the end of 2007 was just over 4.7 million. This subset remained within a fairly narrow band of the average; 96% of the monthly data points were within one standard deviation of it. In other words, during both the recession of the early 2000s as well as the recovery that followed, the total number of people who were not in the work force, but wanted a job, remained fairly consistent. This consistency over 8 years is key, as it gives the perfect baseline.

Using that 8 years’ worth of monthly average as the pre-recession base line, that number is then subtracted from each following month’s reported number of those ‘not in the workforce, but would like a job.’ The resulting difference is (attributable to the recession), is then added back into the labor force data for the month, as well as the total number of unemployed. These revised numbers now include those unemployed persons who have left the workforce due to the recession. The numbers are then divided, resulting in the revised unemployment rate.


x = Number of persons reported as “Not in the Workforce, but would like a job”

y = Revised Number of persons reported as “Not in the Workforce, but would like a job”


x – 4.714 million = y

                y + Total Number of Persons in Labor Force

——————————————————— = Revised Unemployment Rate

               y + Total Number of Persons Unemployed


Accounting for one standard deviation in either direction from the average of 4.7 million, yields only minor changes, a testament to the lack of movement in the data. Taking this into account, there is a band +/- .2% points above and below the revised rate.

Today the Bureau of Labor and Statistics released the September Jobs Report, which saw the unemployment rate drop to 7.8%. Like all of our previous Monthly Jobs Report analyses, we take a closer look at the data beyond the unemployment rate. Below are this month’s takeaways:

1.      All of the metrics show modest improvement

Looking at all of the data points we’ve looked at for past analyses, modest gains have been made across the board. The total number of unemployed persons has gone down, as has the number of people who have left the workforce due to economic reasons. Likewise the total number of people employed has gone up, as has the total civilian labor force. This means that people are not merely shifting out of the workforce, thus improving the other data points.

2.      Workforce Participation Rate increased by .1% to 63.6%

Though an improvement over the record low set in August, this key rate has been skipping along the bottom for the better part of this year. Rates have ranged between 63.9% and 63.5%. In comparison, at its height before the recession began, it was 66.2%.

If this rate begins to climb in a meaningful, and more importantly a sustained way, it is a sign that the public believes that there are jobs available and will rejoin the workforce. Given the length of the recession, millions have dropped out of the labor force and a jobs recovery without bringing them back in would be a hollow one.

3.      Both sides will try to spin this:

This close to an election, these numbers will inevitably be spun by both parties and below details how each side is wrong:

The Democrats: They will try to hail this as a monumental improvement, particularly in that the rate has dropped below the politically important 8.0% threshold. Granted gains have been made in key areas, but they are minor ones at that. Likewise, one marginally good Jobs Report does not a trend make. While it is true that it has dropped below 8%, it is critical to remember that the size of the Civilian Labor Force, used to calculate the rate, is at historical lows. This drop is not due to the baby boomers retiring, but rather people leaving the workforce entirely. If you were to include those in the unemployment rate, taking into account historical baselines, the unemployment rate would be 9.0%.

The Republicans: A number of individuals have already come out and said that they are convinced that ‘the books have been cooked’ or something to that effect. There is nothing in the data that seems to suggest any manipulation of the numbers for political gain. However, given the fact that the report indicates 873,000 jobs being added, while the payroll survey indicated 114,000 does raise eyebrows. The last time the economy added that many jobs was in 1983, when GDP was growing at 9.3%, versus the 1.3% we are seeing now. In addition, several economists have suggested that it was the result of an improbable statistical quirk. Payroll data aside, the rest of data does show marginal improvements in key areas, so this report is indeed good news, albeit marginally so.

According to preliminary data from the Bureau of Labor Statics, New Hampshire’s unemployment rate increased from 5.4% to 5.7% for the month of August.

As with the national unemployment rate released by the Bureau, the unemployment rate is only one of many data points published in the monthly jobs report. The data not commonly discussed in media reports however, often tells more about the true nature of the jobs market than the unemployment rate alone does. Following in the model of our analyses of the national jobs reports, below are three takeaways from the New Hampshire report:

1) Unemployment has risen from 5.0% to 5.7% since May.

This increase represents the loss of roughly 1000 non-farm payroll jobs. With a total of 626,000 employed, this is the lowest level since October of 2010. Since the beginning of the year, the state has lost roughly 3700 jobs. Compounding the job loss is the decline of the Civilian Labor Force, one of the data points used to calculate unemployment. This point is expounded below.

2) Only 2 sectors saw payroll growth, most declined or stayed flat.

The Bureau divides job types into 11 broad categories and tracks the monthly change in the number of those employed in each sector. Over the time frame of May to August where the .7% increase occurred, only two sectors grew, Financial Activities, which added roughly 500 jobs and Government which added 1700. Several sectors remained flat, while Construction and Manufacturing each lost 700 jobs a piece, Professional and Business Services lost 800 while Education and Health saw the greatest loss with 2400 jobs being cut. It is also important to keep in mind that remaining flat is almost the same as decline with the natural growth of the population is taken under consideration.

3) The New Hampshire’s Civilian Labor Force has Fallen Back to Recession Lows, Mirroring National Trends

The Civilian Labor Force, after having grown every month from its lowest point in June of 2011 has now returned to those lows. Since peaking in May, the Labor Force has fallen by more than 5000. Though New Hampshire is a greying state, the size and speed of the drop cannot be attributed to retirements or other demographic trends. Rather, it is indicative of people dropping out of the labor force all together, having given up looking for work. This recent dip indicates that there the level of confidence in the recovery is falling.

Today the Bureau of Labor Statistics released its August jobs report, which showed that the unemployment rate dropped from 8.3% to 8.1%, and payroll grew by 96,000.

Economists had predicted somewhere between 120,000 and 140,000 jobs, with a growth of 150,000 jobs a month needed just to keep up with natural population growth. However, despite the poor job creation number, the overall unemployment rate went down. Why? It all has to do with how the rate is calculated and who counts as unemployed.

While unemployment rate dropped, the underlying data indicates that it was not due to more people being employed, but rather discouraged workers dropping out of the labor force and thus not being counted in the official rate.


1)      Work Force Participation Rate Drops to Lowest Level since 1979:

As noted in earlier analyses of the jobs report, the labor force participation rate has dropped precipitously in the past few years. The participation rate fell from 63.7% to 63.5%. The last time it was this low was under the Carter Administration. That .2% difference translates to more than 350k people no longer considered part of the workforce. In other words, they are no longer looking for work. One might think that this drop is at least partially due to the aging baby boomers, but as pointed out here, more Americans over the age of 60 are in the workforce than ever before.

So why is this important? A drop in the labor participation rate can mean any number of things, such as an aging population (which has already been dismissed as a cause) or people are leaving the workforce due because they think the job market is so bad, there is no chance of them finding a job. The decoupling of the different unemployment rates detailed here indicates that this is the case.


2)      The Total Number of Employed Persons Dropped by 120,000

In addition to reporting the raw number of unemployed people, Labor Statistics also reports the total number of employed people. Despite 96,000 jobs being created, the number of people employed actually fell for the month of August. This means that only 236,000 more people are employed now than were employed in April.


3)      The Number of People Not in the Labor Force but Wanting Jobs Jumps by 400,000

It stands to reason that the large majority of those who dropped out of the workforce last month contributed to this jump. These people however, are not included in the official unemployment rate because the official unemployment rate does not include those not actively searching for work.

If all of those not in the labor force, but wanting jobs were included in the unemployment figures, the rate would be 12.6%, an increase of .1% from the July figures.

Joshua Elliott-Traficante

August 2012

The first Friday of every month, the Department of Labor releases its monthly jobs report. The figure usually reported in the media as the ‘unemployment rate’ is actually just one of six different classifications of unemployment that the Department uses. These are numbered U-1 through U-6 and as the numbers go up, the wider the definition of unemployment. The most common reported by the media and considered the official unemployment rate is referred to as the U-3 rate.

How Rates are Calculated:

Unemployment is almost always reported in terms of percentage rates. In calculating the rates, there are two numbers that are used: The numerator, being the number of people who fit the definition of unemployment for that classification and the denominator, which is the size of the total potential workforce. Divide the two, and the result is the unemployment rate for that classification. Complicating matters is the fact that there are three different potential workforce populations used in the rates. U-1, U-2 and U-3 all use the same potential workforce number, U-4 has one all to its own, with U-5 and U-6 sharing one between them. Because the higher classifications count individuals who are no longer considered part of the workforce, when calculating those rates, those individuals must be added into the total potential workforce as well.

The Classifications:

U-1: This is the narrowest definition of unemployment, counting only those who are unemployed for 15 weeks or longer.

U-2: A slightly wider definition, including those who would be counted as U-1, plus all of those who have lost their jobs involuntarily and those who have completed temporary jobs. A recent example of a temporary job would be someone who took a job as a census taker for the 2010 Census, knowing that once it was completed, their employment with the Census Bureau would be terminated.

U-3: This is considered the official unemployment rate by the Department of Labor and the one most often cited in the media. This rate includes all those who are unemployed and are seeking employment as well as those classified as U-1 and U-2.

U-4: This rate is U-3 plus those workers who are considered ‘discouraged workers.’ In laymen’s terms, these are individuals who are unemployed but not looking for employment only because they think there are no jobs available and to look would be in vain.

U-5: This rate is U-4 plus those workers who are marginally attached to the labor force. Essentially it includes people who are unemployed and not looking for work for any reason, market related or not.

U-6: This rate is U-5 plus all those who are working part-time due to the poor jobs market, but who want and are available to work full time. An example would be a recent college graduate working part-time as a waiter to get by, but would like to work full time in his or her chosen field.

The Decoupling

Before the recent economic downturn, few people discussed any rate other than the official unemployment rate, the U-3. However, the nature of the last recession, as well as the lack-luster recovery has given rise to a debate concerning U-3’s preeminence. Some have argued that given the current economic climate, the U-6 rate is actually a more accurate representation of the state of unemployment.

For the past 18 years, the difference between the U-3 rate and the U-6 rate ranged between 3 and 4.5 percentage points. Since early 2009 however, at which time the recession had been underway for more than a year, the spread rapidly ballooned to 7 percentage points and has remained at or just below that for the last 3 ½ years, unprecedented since the tracking of the U-6 rate began.[1]

This decoupling of rates spurred recent debate of using the U-6 rate over the U-3 rate. The U-6 rate counts the people who have simply given up looking for a job, due to the poor state of the economy and those who have taken part-time work but would otherwise want to be employed full time. People who fall into these categories are not counted under the official unemployment rate.

With a slower than normal recovery, we are seeing an atypical surge of those two groups of workers counted in the U-6 data, but this trend, while critically important when trying to assess the state of unemployment in the country is not represented in the official U-3 rate.

Those who argue for using the U-6 rate point to this fact specifically as the reason to use it over the U-3 rate. This is not to say that the U-3 rate is inaccurate, but its definition of unemployment is too narrow for the current economic climate, failing to capture those two groups of people, whose ranks have swelled rapidly due to an abnormally slow recovery.

As of June 2012 the spread between the two rates was 6.7 points, but trending upward. While it is impossible to say for certain, but it stands to reason that the vast majority of the roughly 3 percentage point overhang from the normal rates can be directly attributed to the tepid recovery.

A New Official Unemployment Rate? Tempting, but Short Sighted

As noted earlier, generally the U-3 and U-6 rates have stayed within a range of 3 to 4.5 percentage points, the 7+ gap as of late is an entirely new phenomenon. It is true, that while the U-3 rate has been a good measure in the past, economic conditions of late have resulted in the official unemployment rate partially masked the true extent of unemployment in the US.

At this point, it seems short sighted to abandon our current measure of unemployment, with the understanding that the current decoupling of the wider definitions of unemployment with the official rate is a fluke.

Should the current state of economic malaise become the ‘new normal’ as some have suggested, changing the designated official unemployment rate would be worth some serious consideration, although stretching to the U-6 would be a bit far. If the goal is to include people who have given up looking for work purely due to economic considerations, then the U-4 rate is worth a look. Like the U-6, it moves in tandem with U-3, albeit at a much closer statistical distance, usually in the neighborhood of .25 percentage points. As of June 2012 it was double that, .5 percentage points, putting the U-4 rate at 8.7%.


[1] Spread calculated by author from data published by the Bureau of Labor Statistics:

Josh Elliott-Traficante

June 1, 2012

The Bureau of Labor Statistics, while showing 69,000 jobs were added in May, also saw the unemployment rate move upwards from 8.1% to 8.2%. While the addition of any jobs is a good thing, most economists were predicting in the neighborhood of 150,000 new jobs, not 69,000. These employment figures shows that there are still underlying weaknesses in the US economy.

In addition to the unemployment rate, Labor Statistics also publishes a myriad of other data points, that paint a far more complete picture of the job market.

Here are a three interesting take away points from the May data:

1) Labor force participation rate increased from 63.6% to 63.8%

Essentially the labor force participation rate measures of all the people in the country over the age of 16, how many of them can be considered a part of the labor force. An increase in this percentage means there are more people in the workforce.

While the participation rate did increase over last month, (the increase probably cause the uptick in the unemployment figures) the fact that the last time it was this low was in the early 1983 is cause for major concern.

In the chart below, from the Labor Statistics shows the trends of the last 50 year with the boom from the mid-1960s to 1990 caused by the influx of women entering into the work force.

The downward trend from 2008 to the present however is largely because of the lackluster economy. Rather than continue try to find a job, roughly 4.6 million  have left the workforce entirely. Many commentators have correctly pointed out, that were workforce participation levels the same now that they were at the beginning of 2008, unemployment rate would be north of 10%.

2) U-6 Unemployment Figures Increased from 14.5% to 14.8%

The Bureau of Labor Statistics has a number of metrics that they measure unemployment by, numbered U-1 through U-6. As the number goes up, the classification has a wider definition.  The most common one heard on the news, and considered the “Official Unemployment Rate” is referred to as the U-3 rate.

The U-6 rate however, includes everyone considered under the U-3 rate, “plus all persons marginally attached to the labor force, total employed part time for economic reasons, as a percent of the civilian labor force and all persons marginally attached to the labor force.” In layman’s terms, it includes everyone who would like a full time job, but either only works part time, or have dropped out of the labor force entirely for lack of work.

With the decline in the workforce participation rate noted above, U-6 and less frequently U-5 unemployment figures have been cited as more accurate representation of the job market precisely because they capture those who have dropped out of the workforce entirely due to a lack of work, where as the Official Unemployment Rate does not count these people.

3) Long Term Unemployment Continues to be a Problem

Of those considered unemployed by the official unemployment rate, a staggering number have been so for a long time. Those who have been unemployed for more than 27 weeks, increased from 41.3% to 42.8% of the total. While it is still lower than it was a year ago, it appears that April’s drop was only temporary.

While the raw numbers show a drop of those who have been unemployed for more than 27 weeks, the continual slide in the workforce participation rate mentioned above means these individuals have left the work force rather than have found jobs.

As shown by these three data points, while the increase in the unemployment rate to 8.2% is bad enough, finer data points of the monthly jobs report show a much weaker jobs market than that 8.2% indicates. The general rule of thumb is that for a recovery to be fully underway, the US should be adding about 400,000 jobs a month. May saw less than 1/4 of that. Our friends over at AEI have pointed out that at the rate we’re going, the job market might not return to normalcy until as late as 2019.