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Official ‘unemployment’ rate understates true U.S. joblessness

Discouraged workers, stagnant wages and underemployment mean labor force has less participation than formally indicated

When Emilia Stancati worked as a sprinkler fitter for a construction company, she made $80,000 per year. But in 2008, along with millions of fellow Americans, she lost her job in the economic crisis of the Great Recession. Today, as a waitress in the Chicago suburb of Evergreen Park, she makes only $15,000 annually, well short of the median annual pay for that job of $21,640.

Stancati’s irregular shifts change all the time, and in order to make ends meet, the 50-year-old does her best to combine server jobs for a full-time schedule. Still, she is unable to cover the roughly $20,000 in living expenses she needs to get though a year.

“Oh God, I hate this,” she said stepping out of her car towards one of the restaurants where she works. “I’m tired of carrying trays and running and getting up at 4 o’clock in the morning ... always depending for my money on how other people feel about me.”

“So when you ask what would be my dream, I don’t have one,” Stancati says.

During the recession, 3.8 million mid-wage jobs and 1.4 million low-wage jobs were lost. In contrast, during the recovery, only 700,000 mid-wage jobs and 2 million low-wage jobs were gained. Across the countries, the job market has seen wage stagnation, requiring people to become satisfied with lower salaries.

According to the National Employment Law project, job growth has been uneven during the recovery.
Neda Djavaherian

Judging by official statistics, the economic recovery has succeeded, with job growth accelerating and unemployment hitting a 7-year-low of 5.5 percent in March. Moreover, applications for unemployment benefits continue to drop.

However, the figures also reveal that increasing numbers of people have given up trying to find employment, with the labor-force participation rate falling to a level not seen since the 1970s. Those who stopped looking for work more than four weeks prior are not counted as unemployed. And, many of the newest jobs are temporary, part-time or without benefits.

When it comes to parsing labor statistics — and thus getting a true sense of the health of the American economy — it seems the devil is in the details. While the “U3” rate of unemployment commonly cited by the Bureau of Labor Statistics suggests that 19 out of 20 people have a job, another measure, “U6,” also includes discouraged workers and those “marginally attached” to the labor force. That rate dropped to 10.9 percent in March.

“U6 is more reflective of the state of unemployment situation,” said Adam Hersh, an economist at the Roosevelt Institute. “It captures people not counted as unemployed [in U3]: discouraged workers who’ve given up looking for work, and also measures people who are working part time for economic reasons.”

Hersh added that even “U6 is not capturing the full extent of the situation because people dropped out of the labor force.”

Real jobless rate: Measures of unemployment show disparity

Usual metric 'U3' doesn't include discouraged workers or part-time employees, which factor into 'U6'

Allen Sanderson, an economist at the University of Chicago, compared the standard measure of unemployment to a player’s batting average in baseball, saying that both indicators are “consistently imperfect” over time. “There are a lot of things that don’t ‘count’ in that denominator: walks, errors, home runs.”

“But whatever rate you want to use, there are problems with the numerator and the denominator,” he added, referring to how the official unemployment rate is calculated by dividing the number of employed by the total number in the labor force.

“Some people looking for work just can’t find it. Other people aren’t really looking very hard,” Sanderson said. “Now we’ve got a significant chunk of unemployed long-term … and that’s a problem. The longer you’re out of the labor force, your skills depreciate [and you’re] not particularly employable.”

‘Some people looking for work just can’t find it. Other people aren’t really looking very hard...The longer you’re out of the labor force, your skills depreciate [and you’re] not particularly employable.’

Allen Sanderson

economist, University of Chicago

In cities such as Baltimore, where residents with minimal educations could land good industrial jobs until the 1980’s, the extent of chronic unemployment isn’t revealed by the city’s official jobless rate of less than 10 percent. But when you include adults who dropped out of the labor force, the number approaches 30 percent. More than 40 percent of working-age black males are not employed.

“We have 100,000 visits at our career center every year [by people] in varying states of underemployment,” said Brice Freeman, spokesman for the Baltimore Mayor’s Office of Employment Development. “Baltimore City, like many urban areas around the country, struggles with a high unemployment rate. It all has to do with opportunities.”

“We work closely with the business community to see what they’re looking for,” said Freeman. “We try to bring people up to certain level so they can be qualified for those jobs.”

But training programs only go so far in an economy not generating high-quality, well-paid job opportunities.

Who wouldn’t want to be working at a higher-skilled job making more money?” asks Stancati, the Chicago-area waitress.

“You have to have skills in order to make that happen,” she said. “I made a decision to go into the restaurant industry. I chose to make a career out of it. I could’ve gone to school and pursued other things.”

“The economy turned in 2008 when I was laid off ... It is nobody’s fault and out of my control,” she concludes. “I do the best that I can do with what I have.”

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