The official unemployment rate from the U.S. Department of Labor for May is 9.4%, the highest in more than 26 years. This is the so-called U3 rate and is the most widely quoted unemployment number in the media. But there are two other numbers that are often analyzed.

The U6 unemployment rate, also called the Bureau of Labor Statistics Broadest measure, includes a larger number of marginally attached, or "discouraged," unemployed in the labor force. The other is the Shadow Government Statistics alternative, or SGS, which uses techniques that correct what John Williams, a specialist on government economic reporting, has defined as flaws in current measurement techniques used by the government.

The three measurements of unemployment are shown in the following graph, from Williams'

Unemployment Rate

The latest data shows 16.4% U6 unemployment (the Labor Department uses the euphemism "underemployment" for this number) and the Shadow Stats unemployment number is above 20% for May.

But what is a fully employed person? I say the definition is someone working 40 hours a week. So if a person is working 30 hours a week, I would define that person as 75% employed. If I consider a hypothetical labor force of 100 people, and if 75 were working 40 hours a week, my definition would be that there was 25% unemployment. If 100 people work 30 hours a week, that is also 25% unemployment. Again, it might be referred to euphemistically as underemployment. But I'll go for the stronger term of unemployment.

For as far back as the Federal Reserve Economic Data base at the St. Louis Fed goes -- to 1964 -- the average weekly hours per worker in private industries has always been less than 40 hours. The number has been in decline for more than 40 years, with dips noted in recessions. The latest number for May 2009 is 33.1 hours a week.

Average Weekly Hours
U.S. Dept. of Labor

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.

Official vs. Implied Unemployment

The Labor Department tracks a number labeled "part-time for economic reasons." This is the number of people who are working part-time, but want full-time work. The following table shows that data over the past 10 years.

The increase in part-time employment for economic reasons has more than doubled from what it was in 2005-2007 and nearly tripled from the number in 2000. The increase in implied total unemployment during this recession is probably not significantly skewed by people working part-time by choice. According to the Labor Department, 19.1 million people were working part-time by choice in May. The annual averages for the past 10 years have ranged from 18.8 million to 19.8 million.

Labor Force Statistics from the Current Population Survey
Labor Department

The Labor Department defines a part-time worker as one working less than 35 hours a week. Following that logic, we can define full-time employment as 35 hours a week (instead of the traditional 40). Recalculating the implied total unemployment produces unemployment rates below zero in good times. This corresponds to more than 100% employment. Thus, either the Department of Labor determination of the labor force is wrong, or too low, or full-time employment must be greater than 35 hours a week.

Acknowledgement: This work was inspired by a comment made by a reader known to me by the nickname ciel. This alerted me to an article by John Jansen, which described work by Joe LaVorgna, Deutsche Bank's chief U.S. economist, relating loss in average weekly hours worked to be equivalent to the loss of 300,000 to 350,000 jobs for every 0.1 hours lost.

Ciel also pointed me toward an article by Shobhana Chandra, which provided further discussion of LaVorgna's analysis. These references discuss how recovery is difficult without an increase in hours worked.

In addition, the Chandra article contained the following: The average workweek has been drifting down in the last five decades as businesses attempt to increase efficiency, Labor figures show. With hours already so low, companies may now start firing more workers as demand slows, said David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York. "Any reduction in demand and order books is going to be met disproportionately by cuts in headcount rather than cuts in hours,'' Rosenberg said in a note to clients.
At the time of publication, Lounsbury had no positions in any stocks mentioned.

John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.

Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog, PiedmontHudson.