The objective of this series to make an attempt to find why there is no inflation in the US economy if there is such low unemployment. Classical economics states that the two must coexist. In Part 1 and 2, I discussed how inflation and unemployment work together. In this installation, I will look more closely at how the Federal Government defines employment and unemployment.
First of all, let us get some important definitions out of the way.
- Civilian Labor Force – is the sum of civilian employment and civilian unemployment. These individuals are civilians (excluding members of the Armed Services, federal employees, retired, handicapped, farm workers, and discouraged workers) who are age 16 years or older, and are not in institutions such as prisons, mental hospitals, nor nursing homes.
- Unemployed – Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.
- Unemployment Rate – The unemployment rate represents the number unemployed as a percent of the labor force.
- Marginally Attached Workers – Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.
- Discouraged Workers – Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.
- Underemployment or Underutilized Labor – Underemployment is a measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience and availability to work. Labor that falls under the underemployment classification includes those workers who are highly skilled but working in low paying or low skill jobs and part-time workers who would prefer to be full-time. This is different from unemployment in that the individual is working but is not working at his full capability.
Unemployment: U-1 thru U-6
The chart above is an explanation of how the government determines unemployment (Bureau of Labor Statistics). U-3 is typically the number reported. However U-6 includes people like discouraged and underutilized workers. U-3 only measures whether a person has a job or not. It does not include the discouraged guy who sets on the couch from morning to night, waiting for the telephone to ring with a job offer, while memorizing all the Bugs Bunny reruns; nor the guy with a PhD in philosophy, who has to settle for a job at McDonalds flipping hamburgers. It also glosses over how many people are working 8 hours at Walmart; then turn around and work 8 hours as a security guard, just to make financial ends meet.
A casual glance at this Figure shows that the difference between U-3 and U-6, historically, has always been about the same. I would have expected a very large difference since the Trump presidency started. An exception is the period between 2008 and 2012; but, currently, the difference is about inline with the historical data.
Bernie Sanders and Alexandria Ocasio-Cortez have been beating a loud drum about underutilized workers and citizens having to work multiple jobs; and that the unemployment figures do not give a proper picture of the US economy. I wish I could support these politicians but the numbers do not really support their claims. The differences between underutilized workers and the unemployed indicate historical patterns without any serious anomalies. It does not appear that anything there has really changed for decades.
In the next and final installment of this series, I will try to explain why the Trump economy is different from the past. In the meantime, please click on the image below for more information on this subject from Fox News.