Low unemployment rate doesn't tell the whole story

Low unemployment rate doesn't tell the whole story
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The unemployment rate held stable last month at 4.1 percent, and the U.S. has only experienced two periods of lower rates over the past half century. Only during the late 1960s and for a few months in the late 1990s did our unemployment rate dip beneath 4.1 percent.

Thus, by this measure, labor markets are performing well and most workers should find little difficulty in finding work. Still, the most commonly reported unemployment rate is not the whole story.

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The Labor Department also reports workers experiencing different types of unemployment. The broadest of these is known as U-6 and includes the traditional measure of unemployment, along with the share of workers who are discouraged or marginally attached to the labor force and those who work part-time because they cannot find full-time work.  

 

While that measure has declined from a recent peak of just over 17 percent in the months following the end of the Great Recession, it remains at 8.1 percent. This suggests pockets of labor market distress worth exploring.

Today there are roughly 6.5 million unemployed under the traditional measure, 1.6 discouraged or marginally attached workers and 4.9 million part-time workers who cannot find full-time employment.

This puts almost 1 in 12 American workers unable to find the employment they wish and provides a source of real concern for policymakers hoping to translate strong labor markets into broad prosperity.

Recent data on workers in these categories offers some insights into discouraged or marginally attached workers. These are workers who have temporarily stopped looking for a job. Gender differences played a very modest role in the overall level of these workers.

However, the causes differ distinctly between genders. Women are more than twice as likely to report being discouraged workers due to family responsibilities, while men are two-thirds as likely to report discouragement over poor job prospects. Men are slightly more likely to be in school or be disabled than are women.

Part-time workers, who cannot find full-time employment are also weighted more heavily toward women, with a little bit more than 10-percent higher level of women reporting work in this category. African-American and Hispanic workers are more likely to be part-time workers due to economic conditions, while Asian men and women report the lowest rates of part-time work.

Involuntary part-time work is most common in low-wage, low-skilled sectors, such as leisure and hospitality and retail trade. Manufacturing, finance and government have very low levels of part-time employment. Seasonal occupations, like construction, leisure and hospitality are also affected across all skill levels.

Yet, it is apparent that both occupation and educational attainment play a role in unemployment in general, and U-6 specifically. There is also a regional component.

Over the past year, the U-6 gap was more than 200 percent between the highest and lowest performing states, with Alaska averaging a rate of 12.6 percent, and South Dakota averaging 5.3 percent, respectively. While part of this is due to industrial differences in states, educational attainment is also correlated with the broadest measures of unemployment.

The traditional measures of unemployment provide a good gauge of the business cycle, but do not reflect the level of underlying labor market stress. While the rate has been dropping since the end of the Great Recession, some 13 million American workers, or one-in-twelve people in the labor force, are unemployed or underemployed.

The causes of this are complex, and the effect is concentrated both geographically and across educational, gender and racial lines. The happy news of a 4.1-percent unemployment rate should not divert policy attention from these workers.

Michael J. Hicks, Ph.D., is the George & Frances Ball distinguished professor and the director of the Center for Business and Economic Research at the Miller College of Business at Ball State University.