Author: Andrew Berger-Gross
Although North Carolina’s unemployment rate has declined considerably since the worst months of the recession, many observers continue to question whether this indicator is accurately gauging labor market conditions. Some of these questions result from widespread misunderstanding about how the unemployment rate is actually measured. But even informed observers contend that the unemployment rate is declining for the “wrong reason”— not because of increased job finding, but as a result of labor force “dropouts” who give up searching for a job out of frustration. This contention is easily disproved using publicly available data from the Bureau of Labor Statistics (BLS).
The BLS publishes Alternative Measures of Labor Market Underutilization based on data from the Current Population Survey (CPS). These alternative measures — known familiarly as the U-1 through U-6 — show what the unemployment rate would look like if it incorporated certain categories of workers into its definition of the unemployed. This includes a category of labor force dropouts that the BLS calls “marginally attached” workers — those who are able, available, and willing to work, but who have not actively looked for work in the previous four weeks.* One subcategory of the “marginally attached” is workers who are “discouraged over job prospects.”
The U-3 follows the standard unemployment rate definition, while the U-4 adds discouraged workers to its measure of unemployed persons (i.e., the U-4 equals unemployed plus discouraged workers, divided by labor force plus discouraged workers.) The U-5 includes all marginally attached workers in its coverage.
North Carolina’s U-3, U-4, and U-5 have tracked each other very closely over the past decade. All three indicators are now closer to their prerecession lows than their post-recession highs, having recovered 63 percent, 59 percent, and 60 percent, respectively, of their ground lost during the downturn.
Although these indicators portray an increasingly tight labor market in North Carolina, they leave several questions unresolved. If there is no discernible increase in “discouraged” labor force dropouts, then what is driving the continued decline in labor force participation rates? And what impact might this decline have on the short- and long-term economic health of our state? Stay tuned for additional dispatches from the LEAD Feed regarding North Carolina’s changing labor market and the factors influencing workforce participation.
General Disclaimers:
The CPS estimates are subject to sampling and nonsampling error. Note that the state-level CPS estimates are not directly comparable to state-level unemployment rate estimates from the Local Area Unemployment Statistics (LAUS) program due to differences in methodology. Any mistakes in data management, analysis, or presentation are the author's.
Footnotes:
*In addition, a worker has to have actively sought work sometime within the previous 12 months to be classified as marginally attached. “Active job search” activities include submitting résumés or job applications; placing or answering job advertisements; checking union or professional registers; interviewing for a job; contacting a public, private, or university employment agency; or asking friends, relatives, or business contacts about job opportunities.