The Jobless Effect: Is the Real Unemployment Rate 16.5%, 22%, or. . .?

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The Jobless Effect: Is the Real Unemployment Rate 16.5%, 22%, or. . .?

Raghavan Mayur, president at TechnoMetrica Market Intelligence, follows unemployment data closely. So, when his survey for May revealed that 28% of the 1,000-odd households surveyed reported that at least one member was looking for a full-time job, he was flummoxed.

"Our numbers are always very accurate, so I was surprised at the discrepancy with the government's numbers," says Mayur, whose firm owns the TIPP polling unit, a polling partner for Investors' Business Daily and Christian Science Monitor. After all, the headline number shows the U.S. unemployment rate today is 9.5%, with a total of 14.6 million jobless people.

However, Mayur's polls continued to find much worse figures. The June poll turned up 27.8% of households with at least one member who's unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.

Even Austan Goolsbee Has Been Skeptical

Mayur isn't alone in harboring such doubts, nor is he the first to wonder about inaccuracies. For years, many economists have pointed to evidence that the government data undercounts the unemployed. Economist Helen Ginsburg, co-founder of advocacy group National Jobs For All Coalition, and John Williams of the newsletter Shadow Government Statistics have been questioning these numbers for years.

In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled "The Unemployment Myth," that the government had "cooked the books" by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low. At the time, Goolsbee was a professor at the University of Chicago. When asked whether Goolsbee still believes the government undercounts unemployment, a White House spokeswoman said Goolsbee wasn't available to comment.

Such undercounting of unemployment can be an enormously dangerous exercise today. It could lead to some lawmakers underestimate the gravity of the labor market's problems and base their policymaking on a far-less-grim picture than actually exists. Economically, and socially, that would make a bad situation much worse for America.

"The implications of such undercounting is that policymakers aren't going to be thinking as big as they should be," says Ginsburg, also a professor emeritus of economics at Brooklyn College. "It also means that [consumer] demand is not going to be there, because the income from people who are employed isn't going to be there."

Indeed, it will add additional stress to an already strained economy. Businesses that might start ramping up after seeing the jobless number drop could set themselves up for disappointment when customers don't appear or orders don't flow in.

College Grads Serving Fries

Plus, having a job today is quite different from what it was just a few years ago: Many Americans have had their hours cut and are working for less pay. A Pew Research survey found more than half of all adults in the labor force had either lost a job or suffered a reduction in income because of the recession.

Ginsburg says the biggest source of undercounting comes from people who can't find a full-time job that they're qualified to do, for instance recent college graduates who take part-time jobs at fast-food joints or retail stores. Today, the Labor Department estimates that 8.6 million people are in this category.

The federal government counts such people as employed. However, polls show that these folks actually consider themselves "unemployed" and "looking for a job," and probably accounted for a large chunk of TechnoMetrica's respondents.

Jobless Workers Who Disappear

Another major source of undercounting is the unemployed who've given up looking for jobs. The Bureau of Labor Statistics headline number counts as unemployed only people who have actively looked for a job in the previous four weeks. About 2.6 million people had pursued jobs in the past 12 months but, discouraged by the lack of opportunity, had stopped looking altogether.

"Isn't it interesting that if you stopped looking for a job, you evaporate as a jobless person and are just not counted," says Gerald Celente, director of Trends Research Institute in Kingston, N.Y. Celente believes this kind of undercounting has suited the government politically. "It's what government does: Downplay disasters and amplify success."

According to the Pew Research Center, a large number of people are out of jobs for a longer period during this economic downturn. The typical unemployed worker today has been out of work for nearly six months. That's almost double the previous post-World War II peak for this measure, which was 12.3 weeks in 1982-83.

Indeed, if all of the truly unemployed were counted, the rate would be significantly higher. The BLS, in a data point titled "U-6," says it counted the total unemployment rate in June at 16.5%.

Misreading Americans' Anxiety

However, John Williams, founder of Shadow Government Statistics, says when accounting for the long-term unemployed, the jobless rate runs up to as much as 22% currently. Williams's newsletter, which analyzes flaws in government economic data, points out that such a rate isn't that far from the 25% it hit during the Great Depression.

Both Celente and Ginsburg believe lawmakers' not-dire-enough view of unemployment is one reason why they didn't extend federal unemployment benefits. Of course, party politics is another deterrent. Ginsburg says the Administration's decision to tackle the health care reform over unemployment reflects its lack of priority.

By taking his eye off one of the most fundamental issues affecting the country, President Obama has seen his popularity sink. The most recent Public Policy Polling survey says 45% of voters approve of the job he's doing, while 52% disapprove -- the first time Obama's disapproval ratings have exceeded 50% in this survey.

It's obvious that Americans view unemployment more urgently than either lawmakers or the president. And if pollsters like Mayur or economists like Ginsburg and Williams are right, it will take longer to fix this hole because it's already bigger than Washington thinks.

Editor's Note: This is the first part of "The Jobless Effect" series.

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Re: The Jobless Effect: Is the Real Unemployment Rate 16.5%, 22%, or. . .?

Also

A challenge to everything you think you know

Five myths about unemployment

The Senate voted this week to restore benefits to the long-term unemployed, aid that expired more than seven weeks ago. Under the extension, unemployed workers can receive a maximum of 99 weeks of income assistance. Helping the long-term unemployed in a period of prolonged recession is generally a bipartisan issue. But this time, Republicans argued that the measure would add too much to the national debt. It's a discussion that gets bogged down in several myths about how to help the long-term unemployed, and the economy, at the same time.

1. Unemployment benefits make people less likely to find jobs.

It's true that if people receive unemployment benefits, they tend to take slightly longer to find a new job. That's the conclusion of a number of studies. Unemployment insurance replaces a maximum of half of a worker's prior wages (up to a cap). When we're not experiencing a prolonged recession, it gives laid-off workers a little breathing room to find a job that matches their skills and experience. This is one of the goals of the unemployment insurance system, since the economy works best when people are in jobs that maximize their skills.

Today, however, unemployment insurance isn't providing breathing room -- it's providing a lifeline. There are now roughly five unemployed workers for every available job. That doesn't mean there are five applicants for every job opening; there may be scores of applications for every posting, as people apply for many jobs. Instead, it means there literally aren't jobs for four out of every five unemployed workers. This is why nearly half of the unemployed have been out of work for more than six months, the maximum duration of state unemployment benefits.

In this environment, allowing extended unemployment benefits to expire would indeed make workers who have exhausted their aid more desperate to find work. But it wouldn't make them more likely to find work, because the jobs don't exist.

2. Unemployment insurance doesn't contribute to economic recovery.

Perhaps surprisingly, providing assistance to the unemployed is one of the most effective ways to create more jobs. The logic is straightforward: For laid-off workers, unemployment insurance benefits replace only part of their prior income, meaning these workers are very likely to have no choice but to spend those benefits on necessities such as food and rent. Virtually every dollar spent by the government on unemployment insurance thus goes toward the eventual purchase of local goods and services, which boosts demand and saves jobs. This is why aid to long-term unemployed workers is consistently rated by the Congressional Budget Office as one of the most cost-effective forms of stimulus. I estimate that the unemployment compensation provisions in the Recovery Act raised gross domestic product by 1.2 percent above where it would have been otherwise, supporting the equivalent of 1.2 million full-time jobs.

3. We can't afford to do this right now.

The deficit will reach about 10 percent of GDP this year, and many have used the deficit issue to attempt to block a wide range of legislation, including the unemployment insurance extension. For example, Senate Minority Leader Mitch McConnell (R-Ky.) said on Tuesday: "What we do not support -- and we make no apologies for -- is borrowing tens of billions of dollars to pass this bill at a time when the national debt is spinning completely out of control."

Efforts to assist long-term unemployed workers and generate jobs will add slightly to the deficit, but not enough to have any significant effect on our budget shortfalls in the long term. The large deficit we have now is predominantly due to the severe downturn, which means the government brings in less revenue as people who've lost jobs or had hours or wages cut pay less in taxes, as do firms that have seen profits fall; that government expenditures for programs associated with unemployment, such as Medicaid and food stamps, rise; and that explicitly short-term policies to fight the recession, such as the Recovery Act, have been enacted. This is all expected during a downturn, and it is temporary.

The United States does face budget challenges that will require policy action in coming years. But the primary causes of our long-run deficits are rising health-care costs and low revenues. According to an estimate by a colleague of mine, the Recovery Act is likely responsible for less than about 1 to 2 percent of this country's long-run fiscal gap. Skimping on assistance to unemployed workers will not help with our long-term budget problems, and it could threaten the economic recovery.

4. The private sector can take care of unemployment on its own.

There is some good news from the labor market: It is adding jobs again. In the first six months of this year, the private sector gained nearly 100,000 jobs each month, on average. The bad news is that between December 2007 and December 2009, the private sector shed 8.5 million jobs -- a staggering loss. We are not yet adding jobs fast enough to significantly undo that damage. The unemployment rate will probably hover near 10 percent for another year, and improvements after that are likely to be painfully slow. The most recent forecasts by the Congressional Budget Office show unemployment averaging 6.3 percent in 2013. This may sound welcome compared with where we are now, but it is higher than the worst annual unemployment rate during the recession of the early 2000s, 6 percent. To help understand why the labor market will take so long to recover, consider this: To get down to the pre-recession unemployment rate within five years, the labor market would have to add an average of roughly 280,000 jobs every single month between now and then.

5. The unemployment rate gives us a good sense of how many people are affected by the downturn.

The unemployment rate may be at 9.5 percent, but that doesn't come close to measuring the share of the workforce that is directly affected by the crisis in the labor market. The underemployment rate, for example, now stands at 16.5 percent. This measure includes not just people who are officially counted as unemployed, but also jobless people who have given up looking for work and people who are working part time but want full-time jobs. But even that number is a conservative estimate, because it doesn't include people who have had to accept a job that is below their skills, training or experience level.

The unemployment rate also masks enormous variation in joblessness within the population. In recessions, racial and ethnic minorities, young workers and workers with lower levels of education tend to be hit particularly hard. For example, right now the unemployment rate for whites is 8.6 percent, but it's a staggering 15.4 percent for blacks. Furthermore, with unemployment so high, employers do not have to pay significant wage increases to get (or keep) workers, so wage growth has slowed substantially, even for those who have kept their jobs. The reach of this crisis goes far beyond what the unemployment rate alone suggests.