http://www.istockanalyst.com/article/viewarticle/articleid/4472902Monday, September 06, 2010 2:47 PM
The headline unemployment rate came in at 9.6% for the month of August. Some are expressing relief or at least hope that it is down from its recent highs of over 10%. The problem is that they are focusing on the wrong number. The real unemployment rate is 16.7%. This is according to the broader and more accurate U-6 number. We will look at the U-6 calculation further down below.
No other economic number garners as much attention as the unemployment rate, especially in political circles. This makes sense since putting people to work is one of the main things that insures a healthy and growing economy, but the way the number is presented poses serious problems. A datapoint this important should be calculated in an accurate and straight-forward manner. So how is it currently calculated?
Basically, the unemployment rate is equalled to the number of unemployed workers divided by the total labor force. The problem lies with how an unemployed worker is defined. According to the International Labor Organization, an "unemployed worker" is one who is able to work, currently able to work, and has actively looked for work within the prior month, but is not currently working. Why is this a problem?
When the economy gets tough, some people who have faced nothing but rejection simply give up and stop looking. This person is called a "discouraged worker" and is not counted among the unemployed.
Obviously by all logical standards, the person is still unemployed as he would jump at the opportunity to be working again. This current recession has seen a surge of discouraged workers as they keep sending resumes into the black hole known as the internet. So how should unemployment be measured?
FULL story at link.
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