“Shadow” Unemployment

In yesterday’s post I summarized how the Bureau of Labor Statistics defines unemployment. To repeat that definition, someone is considered unemployed—and, importantly, therefore also counted as a member of the civilian labor force—if he or she is out of a job, seeking work, and available to work. Here the meaning of “seeking work” is important. The individuals has to have made an effort to get a job within the last four weeks. Note that this definition does not include “is receiving unemployment benefits now”; the individual may or may not be receiving benefits.

The definition of the labor force is Labor Force = those working plus those officially unemployed.

Very well. The BLS also tallies other categories of people the bureau defines as “Not in the Labor Force, Want a Job Now.” That’s a curious definition, isn’t it? What does it mean? It is the count of all those people who (1) are not working, (2) want to work, (3) are available for work, but (4) have not sought employment in the last four weeks. Using annual averages and seasonally unadjusted raw counts, in 2010 the officially unemployed were 14.825 million and the Want-to-Work but Not-in-Labor-Force were 6.059 million. That’s a lot of people. In 2011, using a 6-month rather than a 12-month average, the same numbers were 14.101 and 6.621 million. Put another way, instead 14 million people seeking jobs this years (so far), actually nearly 21 million people want to work. In 2011, thus far, the official unemployment rate is 9.2 percent. But if we add the shadow unemployed to the labor force as well, and then calculate the shadow unemployment rate, it stands at 13.5 percent.

Those 6.6 million Want-to-Workers break down into three categories. (1) Those who are not discouraged, (2) those who are discouraged—and it is because of discouragement that they did not seek a job in the last four weeks—and finally (3) those whom BLS labels “marginally attached to the labor force.” BLS defines such people as those who did not seek employment because of interfering tasks or conditions: school or family responsibilities, ill health, or transportation problems. The biggest category is the first, those who Want to Work but are not discouraged, 4.068 million, next are the “Marginals,” 1.598 million, and the smallest category is the Discouraged, 955,000. Herewith a graphic presenting all of these categories, including the officially unemployed, for the period 2001 through 2011 (6 months).

Looking at this chart I note that throughout this period the shadow unemployment is present, in good times as well as in bad. Source of the data is this BLS facility and others tables reachable from there. The number of those Officially Unemployed has grown at a rate of 7.6 percent a year, the number of Want-to-Workers in the shadow by 3.7 percent. Within this last broad group, those not discouraged grew 2 percent a year, those discouraged by a whopping 11.5 percent, and those viewed as on the margin at 5.4 percent a year. The discouraged are a visibly larger portion of total in the graphic in the last three years.

Through the 2001-2008 period, the difference between the official and the shadow unemployment rate was right around 3.2 percent. In 2001 the official rate was 4.7 percent, the shadow rate 7.9 percent. Beginning in 2009, the difference rose to 3.8, in 2010 to 3.9, and in 2011 to 4.3 percent. In that last year, the official rate was 9.2 and the shadow rate 13.5 percent. The shadow rate is calculated by defining the civilian labor force as made up of all those employed, all those officially unemployed, and all those who want to work but are excluded from the official definition of the unemployed.

As a general rule of thumb, therefore, we can mentally adjust the official rate by adding about 3 percentage points to it. And in dreary times like the current, it’s best to add 4 points to the official rate to stay in sympathy with those in the total population who want to participate in the so-called American dream—but cannot.