A Project of The Annenberg Public Policy Center

What’s the ‘Real’ Jobless Rate?

As the Obama administration basked in the news that the unemployment rate in January dipped to a three-year low of 8.3 percent, Republicans Mitt Romney and Newt Gingrich threw a wet blanket on the announcement. Romney said the “real unemployment rate” was actually 15 percent, and Gingrich said that when you include people who have simply given up on trying to find a job, the rate “jumps up to about 12 percent.”

Is the unemployment rate not the real unemployment rate?

Neither Romney nor Gingrich put things quite right. But they are referring to legitimate yardsticks of “alternative measures of labor underutilization” put out by the Bureau of Labor Statistics.

That’s a daunting title, but to have any chance of sorting though the unemployment spin — which we’re sure to be hearing an awful lot of this election season — you’ll need to familiarize yourself with an assortment of labor measurements labeled by the BLS as U-3 through U-6.

U-3 — This is what BLS calls the “official unemployment rate.” It represents unemployed workers who are actively searching for a new job. That’s the 8.3 percent rate that made headlines last week.

U-4 — This is the total unemployed plus “discouraged workers.” Discouraged workers are those who have given up looking for a job because they are convinced there aren’t any available for them. It was 8.9 percent in January.

U-5 — This is the total unemployed, plus discouraged workers, plus “other persons marginally attached to the labor force.” The marginally attached are people who are neither working nor looking for work, but indicate they want and are available for a job and have looked for work sometime in the last year. But they aren’t counted as unemployed, because they didn’t actively search for work in the last four weeks. That rate was 9.9 percent in January.

U-6 — This is the catch-all of the lot. It includes all of the above groups — total unemployed, discouraged workers and the marginally attached — plus part-time workers who say they would like to be working more, but for economic reasons could only find part-time work. It was 15.1 percent in January.

The U-3 figure is the most commonly accepted and reported figure for the nation’s unemployment rate. But all of the measures have value for those seeking to analyze labor trends. For example, it often happens that even as employment rises after a recession, the unemployment rate may stay the same or rise, as more people sitting on the sidelines decide to get back in the job market. The confusion sets in when politicians selectively cite from this menu of options, or distort them, to suit their political message.

We put together the graphic below to show U-3, U-4, U-5 and U-6 trends under President Barack Obama.

As the chart shows, all of the measures continued upward early in the Obama presidency. And all have been slowly drifting — at times fitfully — back down since late 2009. Given the definitions and recent trends, let’s revisit the comments made by Romney and Gingrich.

Romney said, “If you take into account all the people who are struggling for work or who have just stopped looking, the real unemployment rate is over 15 percent.”

Romney’s spokesman, Eric Ferhnstrom, told us Romney was referring to the U-6. To us, the description sounded more like U-5 (which was 9.9 percent in January). But according to Fehrnstrom, Romney’s phrase “struggling for work” was meant to include folks working part-time who actually want full-time work.

Romney calls the U-6 number the “real unemployment rate,” but BLS spokesman Gary Steinberg said the agency does not refer to U-6 as any kind of “unemployment rate,” real or otherwise, because it includes people who are employed, albeit part-time. The U-3 figure is the “official unemployment rate,” Steinberg said, and has been calculated the same way for decades.

We should note that Romney has often boasted of the unemployment rate when he was governor of Massachusetts. Whenever he cites that number, it has always been the U-3 figure, never the U-6 that he recently called the “real unemployment rate.”

One other point: All of the measures, U-3 through U-6, have been generally trending downward — albeit not dramatically — for more than a year. The U-6 figure, currently at 15.1 percent, is down 2.1 percentage points from its peak in October 2009.

Gingrich took a slightly different tack with his comments. On NBC’s “Meet the Press,” host David Gregory noted that unemployment was at 8.3 percent in February 2009, then went to a high point of 10 percent in October 2009, but now is back down to 8.3 percent.

David Gregory, Feb. 5: How is it that you can say this administration has not led economic recovery?

Gingrich: It’s very simple, David, you didn’t include the number of people who’ve dropped out of the workforce. And when you include the number of people who’ve quit looking for work because they’re convinced the Obama administration’s economy’s so bad they can’t find a job, it jumps up to about 12 percent. When you include the number of people who have part-time jobs who wished they had a full-time job, it’s at 16 or 17 percent. I mean, this is an administration which has actually shrunk the workforce fairly dramatically in the last few years.

We contacted Gingrich’s campaign for some clarification and did not get a response, but he appears to be mixing and matching a bit here. By his description, it sounds as though he’s citing the alternative U-5 figure, which was 9.9 percent in January, not 12 percent. He’s clearly talking about the U-6 when he adds, “When you include the number of people that have part time jobs who wished they had a full time job, it’s at 16 percent or 17 percent.” But that’s also a percentage point or two too high. So what gives?

Gingrich explained that the figures look better only because “over 4 percent of the people who would be unemployed have quit looking for work. If we had the same participation rate we had a couple of years ago, we’d be at 12 or 13 percent unemployment. People just quit looking.”

By raw numbers, BLS data show there has been a very slight increase in the civilian labor force between January 2009 and January 2012. But the population grows every year, and the government’s nonpartisan Congressional Budget Office noted that the rate of participation in the labor force fell from 66 percent in 2007 to an average of 64 percent in the second half of 2011.

“The unemployment rate would be even higher than it is now had participation in the labor force not declined as much as it has over the past few years,” the CBO wrote.

To get to his 12 percent figure, Gingrich assumed a participation rate equal to what it was when Obama took office. But that assumes all of those who left the workforce did so involuntarily. And that’s not correct. Many people, retirees and college students for example, voluntarily leave the workforce. Obama took office just as the post-WWII Baby Boom generation began reaching retirement age by the millions (about 10,000 are now reaching age 65 per day).

According to the CBO, about a third of the decline in the rate of participation is due to factors other than the economic downturn, such as the aging of the baby boom generation. But even factoring those people out, the report says, the decline has been larger than expected.

Another point of context: While Gingrich said that the unemployment figure “jumps” to 12 percent when you include people who have dropped out of the workforce, it’s always true that when you add in discouraged workers, the figure is higher. Like Romney, Gingrich has frequently cited the U-3 figure when touting unemployment during his time as House speaker, noting that it dropped to 4.2 percent. It was actually 4.3 percent in January 1999, when he left office. That same month, the U-6 figure was nearly 80 percent higher, 7.7 percent.

Our fact-checking colleagues at the Washington Post analyzed the gap between U-3 and U-6 figures and found that the average gap before Obama took office was 3.9 percentage points, and that the average has increased to 4.4 points since he entered the White House. But, they noted, the gap has been trending ever so slightly downward in the last year.

— Robert Farley, with Dave Bloom