How Many Are Out of Work, Really?
Using my proposed definition of unemployment, this means that the unemployment rate is currently 15.7% before we even count the people in the labor force that are not working at all. Add this to the official unemployment rate of 9.4% and the unemployment rate right now is 25.1%.
If you include all the unemployed that are part of the U6 estimate the unemployment rate is even larger. It's not appropriate to directly add my 15.7% to the 16.4% U6 number because U6 includes adjustments for people who are working part-time "for economic reasons." Those people want full-time work and can't get it. Making the direct addition would double count the unemployed, or underemployed, in that group.
The following graph shows how the official unemployment rate (U3) and my proposed measurement (called implied total unemployment) have performed since 1964. It is commonly suggested that "full employment" might be near 4% to 5%, using the U3. The argument goes that if U3 is as low as 3% unhealthy stress in the labor market would lead to economic dislocations. It's natural in a vibrant economy to always have around one in 20 in transition between jobs. The graph shows that the periods of "full employment" over the last 45 years have all seen close to 5% U3 unemployment.
The proposed implied total unemployment measurement, however, has increased from 7% to 9% unemployment during "full employment" in the 1960s to 17% to 19% since 1980. Obviously, more people have been working part-time in the last 28 years and in good economic times a significant percentage of those may have been part-timers by choice. For this reason, the implied total unemployment I propose is really a theoretical limiting value and, for practical use, should be adjusted by removing the unemployment imputed for part-time work that is part-time by worker choice.
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