The Real Unemployment

A lot of politicians are patting themselves on the back these days for getting the US Unemployment figures down to 5.7%. And there’s no denying that that is a whole lot better than when unemployment was at its peak in 2009 at 10%. That represents millions of Americans are back at work. All good– right? Hmmm… not really. The oft-quoted “Official” unemployment rate of 5.7% is called the U-3 rate. It covers people without work who are seeking full-time employment. What about all of the people who were employed before the recession, but can’t find a job, or have settled for a part-time job to keep food on the table, or pick up hours contracting when they can find those temporary jobs. How do you count those people? Well, there’s the U-6 unemployment rate.

The U-6 unemployment rate is the more inclusive number. It includes the “marginally attached workers”, those who want to work but have given up. That number, the “real” unemployment rate is 11.3%.

But is that a lot? Of course the U-6 number would be larger than the U-3 number. There will always be people who have given up on a job or are marginally attached in some way. But the key for me is to look at a little history.

In January, 2007, the official (U-3) unemployment rate was 4.6%. At that time, the U-6 rate was 8.4, for a difference of 3.8 percentage points. In January 2015, the difference is 5.6 percentage points.

That says that even though the official rate has fallen from 10% at its height to within a point of its recent low, we still are leaving behind about 9 Million unemployed people who aren’t counted in the official U-3 unemployment rate.

A few thoughts.

  • I can’t help but think we’re pretty much lying about the unemployment rate. When we celebrate 5.7% unemployment, we’re saying, “Pay no attention to those 9 Million people behind the curtain.”
  • Obamacare with its incentive to hire temporary workers for 29 hours/week or less, is probably impacting the unemployment rate.
  • Few workers with full time jobs means fewer consumers spending money. With the US economy heavily dependent on consumer spending, unemployment is a continual drag.
  • Unemployment tends to keep inflation in check. With fewer consumers spending, the money flowing in the economy doesn’t have enough “velocity” to fuel significant inflation.

Hopefully the trend will continue, and the U-6 Unemployment rate – the real unemployment will continue to come down and more of us can get back to work.

If you’re interested in a pretty interesting method to create an alternative income stream-to help protect against job loss-download my free report: How I Target 3-5% Per Month Even When My Stock Goes Down. It might be just what you need.

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