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By Jason Stipp | 06-09-2010 12:54 PM

U6 Underemployment Rate Misunderstood

The U6 unemployment number, which includes part-timers who want to be full-time, is likely nowhere near Depression-era levels.

Jason Stipp: There are a couple of things that I wanted to talk to you about, that a lot of folks are pointing to as potential negatives, other negative indicators in the job market, and I think the biggest one that we hear a lot of folks talk about is this U6 rate. This is the rate that includes workers who are part-time who would want to be full-time, but they can't find the work, and otherwise marginally attached workers.

Can you first tell us a little bit about what does that U6 number encapsulate and why is it higher than the headline unemployment number?

Robert Johnson: It's meant to be a more comprehensive number. A way of looking at the job situation, and I think somebody will try to misuse the number a little bit. They'd try to say, well, when you really add all these components together you were as bad as the Great Depression, and that's just not true. I think there has been some work out. There was some academic work, where people have looked back and said, well if you constructed U6 the same way that it's constructed today, you'd be at something like 37%-38% unemployment rates on the U6 basis during the Great Depression. So, we are nowhere near that. Right now the number is about 16.6%.

Stipp: Okay. And that's an important point about U6 is that when you go back historically, you actually have to sort of rebuild it, because this figure hasn't been around for that long right?

Johnson: That's correct. That's what makes it hard to use this metric. It's only being around since 1990, and those were two relatively mild recessions coming out of that.

The interesting part of it is the two major components. The regular unemployment in working part-time, but really want to be working full time components are available back to the 1950s. Taking these two figures together and tracking them back, we can actually see that we were in a worse situation in the 1980s, in that recession. So, this is a new ground, I mean this number – unemployment goes up the U6 should go up. I mean, it's natural to say that, "well, we've got these other hidden unemployed people." No, no, that's not how to look at this number.

Stipp: You really have tried to compare it to past recessions and see what the trend has been there. This number U6 is always going to be higher...

Johnson: Right.

Stipp: ...than the headline unemployment number. So, it's how it was compared to past recession, you can figure that out, you can get a better sense.

Johnson: And one other thing I'd add on that is that, people who want to throw that all in unemployment, if somebody works 33 hours, that person gets – they are told to stay home one day in a week or something like that and get down to 32 hours. Well, that's a part-time worker. I mean, that may hurt a little bit, but that's not in any way, shape or form like somebody is completely laid off, it's a whole different world.

Stipp: So important to indicate that there could be some noise in those numbers as well.

The other thing that I've been reading about in a negative sense, and a lot of the bears will point to this as a potential problem, is the duration of unemployment, which seems to be especially long this time around. Is there any truth to the fact that unemployment is longer in this recession and what's behind that?

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