In recent years there has been a lot of talk about the quirkiness of the traditional unemployment rate which some argue under-represents the true rate by, among other things, removing “discouraged workers” from the calculation.But “discouraged workers” (i.e. workers who have cited job market reasons or conditions for giving up their job search) are but a subset of a larger group of fringe workers that include both “marginally attached workers” (i.e. workers who are not employed and are not looking but indicate that they wish to work) and those workers who want full-time work but have to settle for part-time.
So, let’s call the larger group that includes all “marginally attached” workers, all “discouraged” workers and all “part-time” looking for “full-time” workers “marginalized workers”.
To calculate the “total” rate of unemployment we would simply use this total “marginalized worker” group rather than the smaller and more restrictive “unemployed” group used in the traditional unemployment rate calculation.
Below is a chart showing the “total” unemployment rate versus the “traditional” unemployment rate along with the year-over-year percent change to the “total” unemployment rate.
Notice that the “total” unemployment rate has increased dramatically over the last 18 months and currently stands at 10.3%.
Also note that this given last month’s data, we are currently sitting at the exact level seen during the worst portion of the dot-com recession and the rate appears poised to accelerate further.
So, is the “total” unemployment rate the “real” rate or is the “traditional” unemployment rate the better measure?I would argue that the “total” unemployment rate is a better indicator of the breadth of hardship faced by a larger number of workers during economic contractions and particularly the current contraction where many workers will be increasingly marginalized and face the hard realities of relying on part-time work or being forced to leave the workforce altogether.
