Unemployment by the Numbers: Getting Better or Getting Worse?

It seems like every economic analyst has their own particular way of judging the health of the economy.  You can measure changes in GDP, the rise and fall of the stock market, prices for commodities, the rate of inflation, etc.  But no matter what indicators you’re using, there’s one thing you can’t ignore: the level of unemployment, and whether it’s improving or not.

When unemployment is high, it creates a discouraging cycle in which a significant percentage of the workforce does not have a steady income and therefore cannot buy things they’d like, which in turn hurts other businesses by eliminating their potential customers.  If those businesses then close up, it ends up causing even more jobs to disappear and the cycle continues.  In that way, high rates of unemployment are not only extremely inefficient but also quite dangerous to the recovery of the economy.

But what actually makes for a high rate of unemployment?  Answering that question is not as simple as you might think.  It’s actually a lot easier to define what is a low rate of unemployment.  Looking at the graph below, you can see that over the past 10 years, anything below 5 percent is quite low:

U3 unemployment numbers from the Bureau of Labor Statistics

The unemployment rate never went below 4 percent during the last ten years, and only briefly dipped below 5 percent twice — in 2001 and at the end of 2006.  Based on the graph, it’s obvious that our current unemployment rate is much higher than it was for most of the past ten years.

To get a better context for these numbers, we can expand our scope to look at the past 50 years.  In fact, if we do this, as in the graph below, we see that historically the unemployment rate has rarely gone below 5 percent:

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U3 unemployment numbers from the Bureau of Labor Statistics

So anything below 5 percent is on the low end.  As for the high end, the graph shows that over the past 50 years, we’ve only had two periods of time where the level of unemployment went above 8 percent — once in the mid-1970s and once in the early 1980s.  The current level of unemployment is 9.1 percent, so it’s safe to say that we’re at a high rate of unemployment relative to the past 50 years.

Now, you’d think that means 9.1 percent of those who want to work cannot find jobs.  But it’s not quite that simple.  In fact, that 9.1 number is drawn from what’s known as the “U3” unemployment number, which does not include people who have a part-time job but would like to work full-time if they could find such a job.  It also does not include individuals who have given up looking for work.

Another number, known as “U6”, takes those things into account, and that number currently stands at 16.2 percent.  The bottom line is, regardless of which number you want to use to measure it, the unemployment rate is quite high.

What we can’t know for sure is whether it’s getting better or getting worse.  Looking at the U3 unemployment numbers for the last five months, we get a picture of a very steady unemployment rate:

  • April, 2011 — 9.0 %
  • May, 2011 — 9.1 %
  • June, 2011 — 9.2 %
  • July, 2011 — 9.1 %
  • August, 2011 — 9.1 %

But these numbers can sometimes be lagging indicators — in other words, the real unemployment picture at this very moment might not be reflected in the unemployment statistics.

Another way to examine this is to think about not only how many people are unable to find a job but to also look at how long they’ve been without work.  The Bureau of Labor Statistics estimates that of the approximately 14 million Americans included in the U3 number, about 6 million of them have been looking for work for more than 27 weeks!

For many of these people, credit cards can sometimes become a temporary lifesaver — but one that can quickly turn into an anchor if their job prospects don’t improve.  They’ll need to start tackling that debt once they do get a job.

No matter the duration, it’s always hard to be unemployed, which is why so many are asking whether unemployment is getting better or getting worse, and it’s the reason we can only hope that the economy continues to recover and that the people who are currently looking for jobs will find them soon.

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