Jobless rate drops to historic low (and it’s no lie)

If you had a crystal ball in 2009 and predicted — at the bottom of the Great Recession — that the following 10 years would become the longest period of economic growth in U.S. history, your audience could be forgiven for laughing in your face. But after the longest continuous period of job growth on record, last month the “headline” national unemployment rate broke through to 3.6 percent, its lowest level in nearly 50 years. And in equally good news, the lesser-known “comprehensive jobless rate” fell to an all-time low of 6.5 percent.

Conceived by sociologist and economist Scott Winship, the comprehensive jobless rate (CJR) is an unofficial, complementary measure of unemployment. It delineates the upper bound of what anyone could argue the “true” unemployment rate really is. Unlike the traditional measurement, it counts everyone who says they want a job regardless of whether they’re actively searching for employment or currently able to start working.

The CJR is useful as a reference point for the other measures of unemployment and as a fact-check, since some pundits and politicians like to suggest that the headline unemployment rate provided by the Bureau of Labor Statistics (BLS) is misleading because it doesn’t count everyone. For example, while on the campaign trail, President Trump regularly argued that the true unemployment rate was as high as 42 percent (though today he touts historically low unemployment).

Some criticism is understandable, but not because there’s some nefarious scheme to control the flow of information. It’s because the definition of what constitutes “unemployment” is critical to measuring it, and what an economist regards as unemployment might not be the same as a regular person on Main Street.

The headline unemployment rate (called the U-3 metric by the BLS) counts someone as unemployed if they fit three criteria. First, they must be jobless — that is, not occupied in work for compensation. Next, they must have engaged in active job-searching — actions that could directly lead to a job offer — in the previous four weeks. Lastly, they must be currently available to start a job. These stipulations are focused on counting the people who are most strongly attached to the labor market and whose job search will affect the wages that employers offer.

There are other BLS unemployment rates that include or exclude sub-groups of unemployed persons. The U-4 unemployment rate adds discouraged workers — those who have actively looked for work within the last year but not in the last four weeks because of economic reasons. The U-5 rate is an expansion of U-4 that includes all marginally-attached job-wanters. The U-6 adds part-time workers who want full-time employment, although in doing so, it muddies the definition of “unemployment” by counting people who are currently employed.

Much of the criticism directed toward BLS unemployment measures revolves around the fact that after 12 months has passed since someone has actively looked for work, they are not counted. This is reasonable from a purely economic perspective: Someone who says that they want a job but isn’t actually doing anything about it isn’t really participating in or affecting the labor market.

But from a social perspective, many people would argue that this person should still be counted as unemployed. The CJR accepts this premise and counts everyone who merely says they want a job. Furthermore, it even counts those who aren’t currently available to start a job, like soon-to-be high school and college graduates, who aren’t included in the regular BLS metrics but are still likely to be affecting the labor market.

The CJR enhances our understanding of the other unemployment rates. For example, when the headline U-3 rate falls, the decline could be job-seekers gaining employment or it could represent them giving up on their job search. Some pundits have even argued that true unemployment hasn’t decreased because people have simply left the labor market altogether. Today, the CJR is proving this narrative false, because the more inclusive measure has been steadily declining over the course of the recovery from the Great Recession.

Mark Twain popularized the saying that “there are three kinds of lies: lies, damned lies, and statistics.” But statistics only lie when they tell half the story — the comprehensive jobless rate is a step toward a greater understanding of the labor market through better use of already-existing information.

Michael Farren is a research fellow with the Mercatus Center at George Mason University. Follow him on Twitter @MichaelDFarren