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TheStreet Open House

The Real Unemployment Rate Is 14.3%

CLAYTON, N.C. ( TheStreet) -- The U.S. Department of Labor (DOL) announced the unemployment data for July this morning. The headline number is the official unemployment rate, U-3, which came in at 9.4%, down from 9.5% in the last report at the end of June.

The official unemployment rate is determined by a body count. It does not differentiate between a person who works a full work week (nominally 40 hours), a reduced full-time work week (say 35 hours) and someone who works part-time (less than 35 hour per week). If the unemployment rate was calculated from total hours worked, the DOL data would produce an unemployment rate of 14.3%, defining a full work week as 40 hours. This is a decline from 14.5% for June.

In determining the real unemployment rate, those who work part-time by choice are deducted from the 40-hour calculation. The U.S. Department of Labor designates these people as "part-time for non-economic reasons." These people are presumably working as much as they want. Therefore, I count each of these folks as an equivalent to full-time employment for the purpose of calculating the extent of unemployment.

All other part-timers "for economic reasons" -- reduced-hours full-time employees -- are counted fractionally, depending on what part of the 40 hours they work. The term "part-time for economic reasons" covers those who want full-time work but could find only part-time positions or have had their formerly full-time hours cut to less than 35 hours per week.

The factors used in calculating the real unemployment rate are listed in the following table, with data from today's DOL report compared to the previous report in June:

Data Used in Calculating Unemployment Rate
Source: U.S. Department of Labor

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