The Deception in Unemployment Statistics

Mark Twain popularized the expression that there are three kinds of lies – lies, damned lies, and statistics. This expression holds particular weight when it comes to the U.S. government’s unemployment statistics. Unemployment statistics create emotional momentum among investment bankers, politicians, small business owners, and consumers alike, and form the basis of what one would hope are rational decisions to manage one’s spending habits or employment situation. Sadly, none of these groups can truly make rational decisions since the statistics behind the unemployment rate are deceptive and very few people have bothered to learn what the official unemployment rate means.
The Bureau of Labor Statistics (BLS) officially announced that the unemployment rate fell to 3.5% in February, 2020. This slight improvement from January might have been cause for optimism, were it not for the brutal truth behind the official number. The official BLS unemployment rate that politicians and the media glom onto without any real investigative analysis is called the U-3 unemployment rate. This number, derived from a national household survey of 60,000 households, is supposed to reflect the number of people who are without jobs and have actively looked for work within the last four weeks. This may sound reasonable at first, but this number does not include several other categories of people. It does not include “discouraged” workers, who have stopped looking for work because economic conditions lead them to believe that no work is available. It does not include “marginally attached” workers, who want to work but have not recently looked for work. It does not include part time workers – those who had their hours reduced by their employers due to the economic downturn, for example – who want full time work but cannot find it. When these other categories are accounted for, the unemployment rate suddenly increases to nearly 10% by the government’s own accounting. This is called the U-6 unemployment rate. Even this elevated unemployment rate does not provide a complete picture. The real unemployment number is even higher.
In 1994, the government changed the way that it calculates the unemployment rate by officially eliminating “long term discouraged workers” from the equation. This means that people who are unemployed for twenty-seven weeks or longer are no longer counted as unemployed – they simply do not exist at all. Once these people are accounted for, the U-6 unemployment rate rises, astonishingly close to 20%.
The next time you see an official unemployment rate, double it. You will be closer to what the true unemployment picture really is.