International Forecaster Weekly

New Study Says America's True Jobless Rate is 26%, Not 8% - Another Symptom of Growing Inequality

To this day, to be officially counted as unemployed, you need to be earning no money at all, and you need to be actively looking for work.

Guest Writer | October 17, 2020

By Dave Allen for Discount Gold & Silver. Readers who follow me know that one of my pet peeves is inaccurate governmental reporting on things like economic indicators.

A prime example: for decades, we've seen evidence of such imprecision every single month in the U.S. Labor Department's jobless figures. And it's only gotten worse since the pandemic kicked into high gear earlier this year.

Here's a brief illustration. The Bureau of Labor Statistics reported that the nation's so-called "headline" September jobless rate was 7.9%.

The headline rate is just what it says - it's the official government rate most commonly reported by the news media and, thus, repeated most often by politicians and institutions.

As noted, the headline rate is the BLS' official U-3 unemployment rate. It reflects the total number of unemployed as a percent of the civilian labor force.

Felix Salmon of Axios reports that the official definition of unemployment can be traced back to the 1870s, when Massachusetts statistician Carroll Wright diagnosed what he called "industrial hypochondria.

By restricting the "unemployed" label to men who "really want employment," Felix argues that Wright minimized the unemployment figure.

Wright went on to found the Bureau of Labor Statistics and brought his undercounted unemployment definition with him.

To this day, to be officially counted as unemployed, you need to be earning no money at all, and you need to be actively looking for work.

THE HEADLINE JOBLESS RATE IS MISLEADING

The Wright dilemma shows the biggest shortcoming of the headline rate - namely, that discouraged and marginally attached workers and those employed part-time aren't included in the U-3 figure.

Discouraged workers are people who aren't working but who want and are available for work and had looked for a job sometime in the prior 12 months. 

The BLS doesn't count them as unemployed because they hadn't looked for work in the prior 4 weeks - for the specific reason that they believed no jobs were available for them. 

The marginally attached are a group that includes discouraged workers. 

The criteria for being marginally attached are the same as for discouraged workers, with the exception that any reason could have been cited for the lack of job search in the prior 4 weeks. 

Persons employed part-time for economic reasons are those working less than 35 hours a week who want to work full-time, are available to do so, and gave an economic reason for working part-time.

For example, their hours had been cut back or they were unable to find a full-time job. These people are sometimes referred to as involuntary part-time workers.

Discouraged, marginally attached and part-time workers show up in the BLS' U-6 unemployment rate, which the BLS says was 12.8% in September.

Now, however, a new report from the Ludwig Institute for Shared Economic Prosperity suggests that the true, the real, the actual unemployment rate in the U.S. is 26.1%.

The Institute's jobless rate is based on the more realistic notion that a person who's looking for a full-time job that pays a living wage, but who can't find one, is unemployed. 

Pretty much simple as that. The Institute, by the way, pegs a living wage at $20,000 a year before taxes.

What this revelation shows is what we've been saying ad nauseam for years - that the official unemployment rate is artificially depressed by excluding people who are earning only a few dollars a week.

If you measure the unemployed as anybody over 16 years old who isn't earning a living wage, the rate rises even further - to 54.6%; for Black Americans, it's 59.2%.

In January, when the official headline rate of unemployment was 3.6%, the true rate was seven times higher - 23.4%. 

The recession only made it worse. Only 46% of white Americans over the age of 16 - and 41% of Black Americans - now have a full-time job paying more than $20,000 per year.

Twenty thousand dollars. Based on a 35-hour work week (or 1,820 workhours per year), that's the equivalent of about $11.00 an hour. It's less than $10/hour for a 40-hour work week (2,080 hours/year).

John Williams, who founded ShadowStats.com, believes September's actual jobless rate was 26.9% - similar to, but even higher than, Ludwig's.

Williams' figure is based on his approach that reflects "current unemployment reporting methodology that's been adjusted for his estimate of long-term discouraged workers, who were defined out of official (governmental) existence in 1994."

INEQUALITY KEEPS GETTING WORSE

Employment is just 1% lower for top wage earners than its pre-pandemic levels, compared to nearly 20% lower for those making less than $20 an hour. That's according to a recent analysis by economics professor John Friedman.

He found that America's billionaires have seen their wealth rise by a combined $851 billion since the middle of March, largely because of the rise in equities.

Most Americans have missed out on that boom, because more than 80% of stocks are held by the top 10% of households here.

And if there's anyone who should be talking about economic inequality it's Jerome Powell, a man who as Fed chair has aimed a spotlight on the issue -- and the Fed -- to reduce it through policy.

But asked about how the Fed's policies have impacted wealth and income inequality in the U.S. during last week's virtual meeting of the National Association for Business Economics, Powell demurred.

Some believe it was similar to the Fed's May policy meeting when he claimed that the Fed "absolutely" hasn't increased wealth inequality.

Economist Peter Atwater of William & Mary College believes that Powell came off as "disingenuous." 

He added, "You can't talk about the critical importance of asset prices and the wealth effect on one hand and then say that Fed actions didn't contribute to inequity.

The Fed explicitly boosted asset values, and the consequence has been to unduly favor the wealthy - by a BIG margin.

While market participants may view him as a hero, the widening wealth and income gap during a pandemic will more likely be Powell's legacy among most Americans - certainly not what he had intended.

Nevertheless, as someone once said, you reap what you sow.

Even if you're not ready to accept the Ludwig Institute's or ShadowStats.com's numbers - or if you simply tend to have faith in the government's reported numbers - remember to look for the BLS' U-6 unemployment figures every month. 

If nothing else, they're certainly much more accurate - and relevant - than U-3.