Unemployment data for the final quarter of 2012 has been released by the Bureau of Labor Statistics and we seem to have established the new normal under the Obama administration. Here’s are the headlines:
- Official U3 unemployment = 7.8% (same as the third quarter)
- Obama unemployment = 9.8% (when you adjust for labor force participation when he entered office)
- Labor Force Participation remained the same as last quarter at 63.6%
- U6 unemployment dipped from 14.7% to 14.4%
Summary of U1-U3 Unemployment
U1 = 4.3% (in blue)
U1 unemployment is the percentage of the labor force that has been unemployed for 15 weeks or longer. As of December 31, 4.3% of the labor force (approximately 8,617,608 individuals*) have been unemployed for more than 15 weeks. U1 unemployment is identical to last quarter.
U2 = 4.1% (in red)
U2 unemployment is the percentage of the labor force who lost jobs or completed temporary work. As of December 31, 4.1% of the labor force (approximately 8,216,789 individuals) have lost jobs within the last quarter. U2 unemployment is down from 4.2% last quarter.
U3 official unemployment = 7.8% (in green above, blue below)
U3 unemployment is the official unemployment figure and is the proportion of the civilian labor force that is unemployed but actively seeking employment. As of December 31, 7.8% of the labor force (approximately 15,631,939 individuals) are unemployed and actively seeking work. U3 unemployment remains where it was last quarter.
Summary of U4 – U6 Unemployment
U4 = 0.7% or 8.5% when added to U3 (in red)
U4 unemployment represents discouraged workers, or those who have stopped looking for work. These discouraged workers are in addition to the unemployed individuals captured by U3 unemployment. As of December 31, 0.7% of the labor force (approximately 1,402,866 individuals) are considered discouraged, which is up from 0.5% over last quarter.
U5 = 0.9% or 9.4% when added to U3 and U4 (in green)
U5 unemployment represents marginally attached workers, defined as those who “would like” and are able to work, but have not looked for work recently. These marginally attached workers are in addition to the unemployed and discouraged workers above. As of December 31, 0.9% of the labor force (approximately 1,803,685 individuals) are considered marginally attached, which is down from 1.0% last quarter.
U6 = 5.0% or 14.4% when added to U3, U4, and U5 (in purple)
U6 unemployment represents part-time workers who want to be full-time. These underemployed workers are in addition to the unemployed, discouraged, and marginally attached workers above. As of December 31, 5.0% of the labor force (approximately 10,020,474 individuals) are considered underemployed, which is down from 5.4% last quarter.
Labor Force Participation and Adjusted Unemployment
Labor Force Participation (LFP) is unchanged from last quarter and remains historically low at 63.6% (also from the Bureau of Labor Statistics). Ideally, LFP should be rising. When LFP falls, that means people are leaving the labor force but, while not working, will not be counted as unemployed.
Labor Force Participation is an important factor in determining unemployment because it affects the denominator of the official unemployment calculation. You may have heard news reports where 100,000 jobs were lost, yet the unemployment rate remained unchanged. This is the effect of labor force participation.
Obama’s Unemployment Adjusted for Labor Force Participation = 9.8%
It’s possible to adjust unemployment by equalizing the labor force participation rate over time. The following chart shows the U3 and U6 unemployment rates adjusted for the labor force participation rate at the time when President Obama was inaugurated (65.6% in Q1 2009).
If the labor force participation rate were the same as when President Obama entered office, true unemployment this quarter would be 9.8% instead of 7.8%. Additionally, the real rate of U6 adjusted for LFP would be 16.4%.
*Individual counts are based on a current population of 315,109,241 (Census Bureau)