Official Unemployment Rate Always Understates Real Unemployment

Some of my friends on the right have made a great deal of hay over the fact that real unemployment exceeds the official unemployment rate calculated by the Commerce Department's Bureau of Labor Statistics (BLS). I can't say I blame them, as people on the left made hay about the same thing during, for instance, the Reagan recession in the early 1980s. I want to stress, however, that because the official unemployment rate always includes only those actively seeking jobs, it always understates the real rate of unemployment (as students in my macro class will learn later this semester). So what's true now was true last year under Bush, during the early 1980s under Reagan, and for that matter during the Great Depression under FDR. Whatever its other faults, there's no plot by the Obama administration to use the BLS to hide the real rate of unemployment.

The official BLS figures understate the rate of unemployment not just during recession but even during economic expansion. Since people have a harder time finding a job during a recession, however, a recession produces more discouraged workers, and thus a larger share of unemployed who don't get counted in the official BLS unemployment rate. So the official unemployment rate clearly understates unemployment more during a recession, and the deeper the recession, the more the BLS rate understates the real rate of unemployment. Depending on which other measure you use, the real rate of unemployment now ranges anywhere from about 11% to about 16%. So there's not doubt that many Americans are feeling the pain of the recession. Just remember that you can't compare the 11% or 16% today to the official BLS unemployment rate in some previous recession; you need to compare the 11% or 16% to the real rate of unemployment in a previous recession. Even by comparison with the real unemployment rates of previous recessions, the current one looks bad--but again, not remotely as bad as during the Great Depression.

http://www.nytimes.com/2009/09/07/us/07worker.html?th=&adxnnl=1&emc=th&adxnnlx=1252317646-vapUsPyebG26pCq7UAoEnw