No, Unemployment is not 4.9 Percent. It’s More Complicated Than That.

Since the latest job report that was released, the unemployment rate has held steady at a low 4.9 percent. The country hasn’t seen this low of an unemployment rate since “Pre-Recession” in 2008. This must mean the country has completely recovered from the economic meltdown roughly a decade ago and is doing just fine, right? Wrong.

There are actually multiple ways to calculate and classify the unemployment rate and the most frequently cited one is called the U-3 rate. The U-3 unemployment rate takes into account all forms of employment that a person undertakes. It really is a broad measurement, to say the least. It’s more of a binary classification of “employed vs. unemployed.”

As many of us know, however, the real economic and employment situation of the country is much different than what it is being portrayed as. While 4.9 percent sounds like a pretty number and in economic terms, would be considered at or close to “full employment” the reality is not as pretty.

The U-6 unemployment rate, which takes into account the different levels of employment, shows the unemployment rate to be around 9.7 percent. This is nearly double the U-3 rate!

The U-6 rate is defined as every employed individual in the country plus people who are employed part-time for “economic reasons.” In other words, while the U-3 rate counts part-time workers as employed, the U-6 rate counts people who are part-time employed as unemployed.

This is completely understandable for the following reason: nobody who is part-time employed is able to sustain a reasonable lifestyle above the poverty threshold. It is not fair to classify these people in the same manner that full-time workers are. It completely obfuscates the current economic conditions and downplays the hardships that people have to endure.

Rather, the U-6 rate encompasses a more comprehensive economic picture and allows us to truly understand the health of the job market.

In addition, we must take into account the labor participation rate. This is the proportion of people who are employed versus the percentage of people who are looking for work. As of now, the labor participation rate is at 62.8 percent, a level that hasn’t been seen since 38 years ago.

Now, some of this is attributed to the number of baby-boomers retiring. In addition, it also includes students who are in college or in high school so these two factors do have an appreciable effect on the labor participation rate. However, the fact that the economy has been growing at a tepid rate also plays a factor in a person’s desire to search for jobs. After all, an economy that is growing healthily and producing high-quality jobs will likely encourage a person to seek out employment.

The moral of the story is, despite what recent reports may show about the economy and unemployment rate, there are always questions that need to be asked. In this case, we should be asking ourselves, is the U-3 unemployment rate a reliable indicator? Does it take into account an accurate representation of the economic situation in the United States? One thing is for sure, while the numbers point to a “sustained and steady recovery,” most people have been hurting financially and are not living in an economic paradise as the job reports make it out to be.

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