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Unemployment
Analyzing unemployment data to show that "real" unemployment is worse than the headline numbers show. Created by Sal Khan.
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- In my textbook they referred to different types of unemployment (frictional, structural, seasonal and cyclical). My teacher said that if global warming raises temperatures so high that snow can never exist again, a ski instructor would be structurally unemployed. I do not get this because according to me the ski instructor should be seasonally unemployed.(4 votes)
- Structural unemployment means the consumption within an economy changes and certain jobs are no longer needed. The change is permanent. If there was no snow you would never be able to ski again, so there would no longer be any need for ski instructors. Another example would be how the computer industry made a lot of people in the typewriter industry structurally unemployed. Or how the car industry made a lot of people in the horse and carriage industry structurally unemployed.
Seasonally unemployed is just unemployment based on the seasons. Ski instructors in the summer, beech life guards in the winter and mall Santa's come January are all seasonally unemployed. Their jobs will exist again once the season comes back around.(8 votes)
- I found this video very informative. This does raise a question. Which U-# get reported in the financial news?(4 votes)
- Unemployment then actually is not a true measure of the status of the blight of the non-working?(2 votes)
- Though I suppose you can use it in that sense, a more common turn of phrase would be "the plight of the non-working" rather than blight. Usually, you would talk about "the urban blight" of shuttered houses resulting from the financial crisis. And in response to your question, the answer is no. If you have not looked for work in the past month, you are not included in the U-3 numbers.(2 votes)
- Can somebdy please explain to me all the way we can measure unemployment, in detail ( from U-1 to U-6)? It wil be help me alot to understand the unemployment rates in difference country.(3 votes)
- Are there labor statistics for other countries that show unemployment rates similar to the U6 figure?(2 votes)
- I have had trouble with international U-6 for months. The OCED does offer some stats on discouraged workers but you will have to compute U-6 on your own.
http://www.bls.gov/fls/flscomparelf/unemployment.htm
http://stats.oecd.org/Index.aspx?DataSetCode=DW_D
When I do an international comparison, I usually start with UK and do my best to match up the data collection methodology on the local website, ONS. But I always worry I missed something.
(3 votes)
- How does the B of L determine if an individual is seeking a job? I have several friends that are networking, sending out resumes via e-mail, etc. How is someone included in the sample? And how big is this sample?(2 votes)
- Labor Force estimates are derived from the Current Population Survey (CPS). The CPS is conducted every month by the Census Bureau during the week of the 19th. Included in the survey is a set of questions that help categorize people as employed, unemployed, or not in the labor force for the various measures of labor under-utilization mentioned in the video.
Sample selection for the CPS is done by dividing the country into Primary Sampling Units (PSUs). Within a given state, PSUs are grouped into strata based having similar demographics. One PSU from each stratum is selected. From those PSUs sampling clusters are selected. This results in approximately 60,000 households that are eligible for interview.
In your friends' cases, networking, sending out resumes, etc. are considered "active job searches". So provided they did not work during the reference week (week of the 12th), were available for work, and conducted those active searches during the previous 4 weeks, they would be considered "unemployed" under the U-3 definition.(2 votes)
- You note how the spread between U3 and U6 is increasing. But as you take their ratio it is always about 1.8! (U6/U3) Doesn't that contradict the point you are making here? Maybe the increase of U6 isn't something as notable?(2 votes)
- will this help i'm in 7th grade(0 votes)
- Khan Academy is for everyone, regardless of age. Even if you don't get it right away, keep watching, as these are some of the best teaching videos i've ever seen. And...as you get older (high school, college) his stuff just keeps getting better!(5 votes)
- I don't understand why deflation isn't good exactly. Is it because when prices go down profits also go down and therefore more people become unemployed (which just makes things worse)?(1 vote)
- Good question. Economists generally believe that deflation depresses economic growth by reducing consumer spending (consumption), increasing real debt, and possibly decreasing money in circulation in the economy (money supply).
Intuitively, this makes sense if you think of a practical example. In the case of consumption. imagine that today you have $100 in cash under your mattress. You want to buy apples and you know that the price is $1 per apple, so your $100 buys 100 apples.
But you also know that prices are falling and next year's price will be $0.91 per apple. This lower price means that the same $100 in your mattress will get you 110 apples if you wait just one year.
A rational consumer would delay purchases of apples for as long as possible to take advantage of lower prices in the future (more apples for the same money). If that consumer believes that prices will continue to fall for the foreseeable future, he may delay purchases indefinitely. If many consumers in an economy behave the same way, consumption will be depressed, and economic growth will slow.(1 vote)
- Has Obama cut unemployment in half?(1 vote)
- Obama didn't do it. The economy recovers on its own after recessions. Presidents have little impact on the economy, even though they like to claim otherwise when things are good, but not when things are bad. And of course their opponents blame them for everything bad and deny them credit for anything good.(1 vote)
Video transcript
I've done a bunch of videos now
on inflation and deflation and how they can be impacted
by capacity utilization. And the traditional notion of
capacity utilization, and this is what my brain does when
someone mentions it, is I think of industrial capacity
utilization. I imagine factories. And when people say low
utilization, I imagine idle factories, and when high
utilization, I imagine factories that are running at
three shifts and things are moving feverishly. But in a service-based economy
like we have here in the U.S. and like we have in a lot of
Western societies, most of our real capacity for what we
produce, or our GDP, is service based, because we're
a service-based economy. And if you think about it,
industrial capacity utilization, it matters, but
it matters much more to manufacturing-based economy. In a service-based economy,
the best measure of utilization really
is unemployment. And I guess we could say
the best measure of underutilization is
unemployment. With that said, I think it's
really important to have a deeper understanding of how
unemployment is measured and how it's thought about from
the Government, and the numbers you hear on CNN, what
they really mean in terms of the real unemployment picture. And most of these charts,
actually all of these charts that I have in this video, I
got from Mike Shedlock, who runs the Global Economic
Analysis blog. And I had a conversation with
him on Friday and he pointed out some really interesting
things. That's what I really want to
cover, and I think it'll give us a good general view of
unemployment and give us some clues as to what's going
on right now. But I encourage you
to read his blog. He goes by Mish, and he tells
people that the best way to find his blog is to just do a
search on Google for Mish. And he does a lot of this, where
he looks at the economic data, but he goes several levels
deeper than anyone really would go, especially
on TV. But that's what you really have
to do to really discern what matters. And I want to give him full
credit because he really is who pointed out a lot of this
to me, but I think it's very instructive to the capacity
utilization and inflation-deflation argument
that I've been making. So right here I have a
screenshot from the Bureau Of Labor Statistics and you
could go there, just do a search for them. And what most people don't
realize is, just like on the money supply, you have different
measures of money supply, you also have different
measures of unemployment. And the number that you hear
reported, at least since 1994, is U-3, and that's where
we'll start. That's kind of the official
rate of unemployment. I know you can't read
this properly. My screen capture software
doesn't do well with this font. But U-3 is total unemployed as
a percent of the civilian labor force. So it's very important to
realize what they consider unemployed and what they
consider the labor force. They consider you unemployed
if you don't have a job and you have looked for work
in the past four weeks. And this is a really
important point. It really is important to think
about it relative to everything else I'll go
over in this video. Because we've probably had times
in our life where we considered ourselves unemployed
or we considered someone else unemployed, but
they had maybe gotten dejected and stopped looking
a little bit or decided to take a break. It's important to realize, in
the numbers that we hear from the Government, they don't count
as part of the civilian labor force. Well, let's say, you stop
looking for a job for five weeks, because you wanted to
take a break and maybe redo your resume for awhile, so
you're kind of passively looking for a job. The Government no longer
considers you part of the labor force and you're not
included in that number. They do have broader numbers
that do include that. And I think that's important,
because we're actually going to study the difference between
the different numbers. U-4 is total unemployed. So it's the number up here, plus
discouraged workers, as a percent of the civilian
labor force, plus discouraged workers. So they're going to add
the discouraged workers to the numerator. Let me do this in a
different color. Before you had-- this
is the standard one. You have unemployed over
employed plus unemployed, as defined-- and when we say
unemployed, it's someone who doesn't have a job, but you've
looked for a job in the last four weeks. U-4 is now-- let me do it
in a different color. It is unemployed plus
discouraged over employed plus unemployed plus discouraged
workers. And their definition of
discouraged workers-- I just talked about people who haven't
looked or actively looked for a job in more than
five weeks or actually more than four weeks. You're considered discouraged if
you give a reason for that, and you say, well, I just
haven't looked for it, because I'm discouraged, because I don't
think there are jobs for what I want to do anymore, so
that's the reason why haven't looked for it. And that's when you get included
into this bucket. And then U-5 is that same thing,
but what they do is they add other marginally
attached workers. And the difference between a
discouraged worker and a marginally attached worker, a
discouraged worker gives the economic reason. They say I haven't looked for
a job in the past five weeks because I just think
it's impossible. I want to work but it's just
impossible find a job as an accountant or an engineer
anymore. While a marginally attached
worker also says I haven't looked for a job in the last
five weeks, but they don't say it's because they think the
economy is making it impossible. It could just be that they're--
I don't know-- depressed generally or they
don't want to-- it could be a whole set of reasons. The important thing is that on
the survey that the Bureau Of Labor Statistics conducts, that
they don't literally give that argument that the only
reason that they're not looking for it is economic
reasons, and then they'll be put into the marginally
attached workers and that's U-5. And then U-6 is really
interesting because it includes all of these
above, but it actually shifts some people. So in U-5 you would add
marginally attached to the denominator there. In U-6 what you do is you have
total unemployed plus all marginally attached workers plus
total employed part-time for economic reasons as a
percent of the civilian labor force, plus all marginally
attached workers. So the important thing here
is, plus total employed part-time for economic
reasons. That's key, so the denominator
doesn't change anymore, but this unemployed number is
going to get bigger. Because there's some part of
the employed population who are not working 40 hours a week,
or they're not working as much as they want to work,
or they're not maybe working in even the field they
want to work. Maybe instead of working as an
engineer, they're working 20 hours a week at the local
bookstore or at Starbuck's, and these people are
included in U-6. And the reason why I want to
really highlight that, and Mish pointed this out to me,
is that this is increasing much faster than this. And we'll think a little bit
about why that's happening and what conclusions we can take. These are the numbers straight
from the Bureau Of Labor Statistics. I know this screen right here is
really hard to see, but if you look at March 2008, the U-3
number was 5.2% and the U-6 was 9.3%. So the difference between
the two is about 4.1%. But if you go to the most recent
month, the standard unemployment number is 8.5%,
but the U-6, the one that includes the discouraged
workers, the marginally attached workers and the people
who aren't working full time for economic reasons, the
difference is now 7.1%, so that spread. People who would like to work,
but they've either stopped looking because they've gotten
dejected, or they've just bitten the bullet and taken
a job that they otherwise wouldn't want to take or taken
fewer hours than they otherwise wouldn't want to
take, that's growing. That really is. And the reason why we really
want to focus on that is because it tells us that even
though the unemployment rate, the official unemployment rate--
that is increasing very steeply and I'll show a graph
right here, this is actually work Mish did, where he actually
shows that the spread between U-6 and U-3 has been
increasing, and it's been increasing at an accelerating
rate since last February. That's actually shown right
here in this graph. And he got this from his
friend Chris Puplava at Financial Sense, so I want to
give him credit for it. But you see here, U-6, this
is the broad measure of unemployment that we talked
about right here. That's increasing at an even
faster rate than the standard unemployment measure. And this green line right here,
this is actually the difference between the two. What's interesting about that
is this is kind of measuring the percentage of the labor pool
that's getting dejected, that's getting depressed. So they're either getting
depressed or dejected and not looking for work, or they're
just saying, you know what? I can't get a job 40 hours a
week anymore as an accountant. I will now go work part-time at
the local department store or do whatever it takes to put
some food on the table for their families. In general, it shows the
level of desperation. And if you look here, and this
is really interesting. This is also from
Chris Puplava. If you look relative to the
path, the last major recession that a lot of people talk about
is the early 80's, the double dip recession, and
even though the headline unemployment rate-- let me
make sure I get the right color-- the headline
unemployment rate here is the blue line, that is still
a good bit below. We peaked out there, and I
don't know what the exact number is, but it looks like
about in the mid 10%. Even though we're a lot lower
than that now, we're at 8.2% right now, if you look at U-6,
which is the broadest, that's spiked up. Unfortunately, the data
for U-6 doesn't go back before 1994. They actually changed how a lot
of things were measured. The official headline rate,
instead of calling it U-3, it used to be called U-5, but it
was, for the most part, the same measure, but that's
changed a little bit. But U-6 did not exist before
1994 so, unfortunately, we can't measure U-6 back then. But a good, I guess,
pseudo-indicator for U-6 that we do have more historical
data on is the number of unemployed for more
than 15 weeks. These are people who have been
looking for work, but 15 weeks or more, they still haven't
found a job even though they've been actively
looking for work. And that, if you look at least
while we have U-6 being measured, it has tracked that
broad measure quite well. So if we can make the assumption
that U-6 is always on that line or above it as it's
graphed here, which it is so far, then U-6 in the early
80's was probably right around where that line is now. Maybe it was a little higher,
maybe it was up here. But what this graph really
does convey is that that broadest measure of unemployment
is already as bad as it probably was in
the early 80's. It's just that we don't
have that data there. And if anything, those part-time
workers, because they are employed, so in the
official unemployment measure, they're actually making
the number look a little bit better. Here you had fewer people. You were either employed
or you were unemployed. If you're unemployed, you
made the number look a little bit bigger. Here you have a lot more
people who are kind of in-between, but they
get counted in the employed number. So they're making the actual
reported official unemployment rate a little bit lower
than is actually the economic reality. I think that's a really
important thing to realize that you have this accelerating
rate of desperation out there in the
economy and, if anything, it's telling us that things are
getting worse, and it's telling us that things are
probably as bad as they've been in some of the worst
recessions in history and they're only getting worse. And going back to where we
started this video, in terms of capacity utilization and what
that might do to prices, this tells us that labor
utilization is low and going down. What that tells us, is
that the price of labor is going down. And you've probably read
multiple news reports already about how this is the first
time furloughs are big. People are actually
taking wage cuts. So you're already seeing
deflation in wages. And when so much of our economy,
and even the basket of goods in the CPI-- and I'll
do another video on that --is service based, if you're seeing
deflation in wages, that's another data point that
tells you, at least in the medium term, we're probably
going to see further deflation in prices as a whole. See you in the next video.