Widening the Underemployment Pool – And Those Who Calculate It

BY Paul Solman  February 2, 2012 at 2:03 PM EST

Job fair; Matthew Staver/Bloomberg via Getty Images
Photo by Matthew Staver/Bloomberg via Getty Images.

More signs that the U.S. economy may not be headed into a strong recovery just yet: unemployment was at 8.6 percent in January, with underemployment up to 18.7 percent.

But wait a minute. Those of you that watch unemployment numbers (and this page) closely will surely note that we’re a day ahead of ourselves: the government’s official unemployment reckoning, as compiled by the Bureau of Labor Statistics, will be announced Friday morning at 8:30 a.m. ET. So what’s the deal?

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The figures above come from Gallup, the research and polling group. It turns out Gallup has been tracking U.S. unemployment and underemployment rates as long as we have here on Making Sen$e. We just discovered that, since January 2010 (the same month we unveiled U-7), they’ve been doing their own polling — separate from the government — to try and assess the jobs situation.

Why create a new measure?

“The way unemployment is measured is very important for policy reasons and otherwise,” says Dennis Jacobe, Gallup’s chief economist. But underemployment — part time work for those who want full time jobs — Jacobe thinks the number is being under-reported.

To get what Gallup calls its “Underemployment Rate,” Gallup adds to those who’ve told them they’re unemployed all those working part time because they say they can’t find a full-time job. The total, Jacobe said, as a percentage of everyone polled, 18 and higher, is usually a few percentage points above even the government’s expanded measure, so-called U-6. (Official or “headline” unemployment is known as U-3.)

For December, Gallup calculated an “Underemployment Rate” of 18.3 percent, more than a percentage point higher than our U-7 of 17.12 percent. (We’ll have January U-7 figures for you Friday.)

To determine U-7, we add to the officially unemployed of U-3 all those who currently want a job but don’t have one and those who are part time for economic reasons. We divide that by a larger workforce number than the government uses, adding those who want a job but currently don’t have one and the part-timers.

We were alerted to Gallup’s figure by a soon-to-be published paper proposing a federal jobs program (more on that Friday). Why is it higher than U-7?

Partially, it’s due to different methods and parameters. For example, our U-7 is based on Bureau of Labor Statistics data. Gallup samples 30,000 individuals per month, while BLS interviews 60,000 households. Gallup neither seasonally adjusts their data nor removes farm payrolls, both of which BLS does for the official unemployment rate.

But Jabobe says Gallup’s numbers are more indicative of the true un- and underemployment situations.

“We have modern survey techniques,” Jacobe said, such as including cell phone numbers rather than just land lines. “We have the most up to date, modern techniques that exist.”

From here on, expect to see Gallup’s figures highlighted, along with our own and the government’s, each month.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._