Jobs Friday: A Crash Course On Six Unemployment Rates : Planet Money : The Indicator from Planet Money The world of unemployment rates can get confusing. We are here to help. What is U-3 and what is U-6? Of course, U-2 is here as well. And now, the Indicator presents... the U-Blend!

Are We Looking At The Wrong Jobs Numbers?

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

STACEY VANEK SMITH, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

DARIAN WOODS, HOST:

And I'm Darian Woods.

VANEK SMITH: And it is Jobs Friday. The U.S. economy added 850,000 jobs in June. That is a lot of jobs in just four weeks.

WOODS: Does this mean - could we, should we bring out the air horn?

VANEK SMITH: Well, here's where things get weird, Darian. The unemployment rate went up from 5.8% in May to 5.9% in June, which is strange, right? Like, how can the economy add 850,000 new jobs and then the unemployment rate goes up?

WOODS: Is this a rhetorical question?

(LAUGHTER)

WOODS: Do we know the answer to this?

VANEK SMITH: Well, you know, I did put this question to an actual expert, labor economist Nick Bunker at the Indeed Hiring Lab. And he says part of the issue is that this data, the number of jobs added and the unemployment rate, comes from different places. But he also added that he thinks the unemployment rate that we are looking at, that 5.9% number - that is not the number we should be paying attention to. He thinks we're looking at the wrong number, Darian.

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VANEK SMITH: So today on the show, forget everything you thought you knew about the unemployment numbers.

WOODS: Unemployment tabula rasa. Jobs Friday will never be the same.

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WOODS: So the first thing you have to know, that unemployment number that we hear every month - that's not the whole truth. There are six unemployment numbers that the Bureau of Labor Statistics puts out every month - U-1 all the way through to U-6. U stands for unemployment.

VANEK SMITH: And normally, like, different kinds of unemployment numbers - this is the kind of thing that is only interesting to, like, labor economists (laughter) like Nick. But right now it is crucial. So with that in mind, Darian, let us wade in to the wildly technical world of unemployment numbers - the U-niverse (ph) if you will.

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AUTOMATED VOICE: Level one - U-1.

NICK BUNKER: So U-1 is for people who have been unemployed for at least 15 weeks or longer.

VANEK SMITH: OK, U-1 - this would be like a recent college grad who has been applying to jobs actively for four months, hasn't gotten a bite.

AUTOMATED VOICE: Level two - U-2.

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WOODS: So that brings us to U-2, which means no waiting 15 weeks to be counted in U-2. But you have to have lost your job or had your job end, so the graduate probably wouldn't count. But U-2 would count somebody like an ice cream truck driver in New York - somebody whose job goes away when the summer ends.

AUTOMATED VOICE: Level three - U-3.

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BUNKER: Yes, U-3 is the unemployment rate that we all know and love.

VANEK SMITH: U-3 - the big kahuna. This is the number we hear every month. This was the 5.9%. U-3 counts you as unemployed if you are actively looking for work and are ready to start right away, so this is the recent college graduate plus the ice cream woman. Nick says U-3 is very clean, very simple, not a lot of room for ambiguity. That's why people like it. That's why everyone looks at it.

BUNKER: If you want to get a sense of what the health of the labor market looks like, you basically want to say, OK, of everyone who is actively looking for a job, what percent of them don't have a job but want one right now? And that's what U-3, that old trusty unemployment rate, is trying to get at.

WOODS: But Nick says U-3 is not a good measure of what's happening in the labor market right now. He has his eyes on the greater Us - Us four, five and six.

AUTOMATED VOICE: Level four - U-4.

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BUNKER: So U-4 - it's all people who are unemployed, and then you add discouraged workers.

WOODS: Discouraged workers - this would be the line cook who wants a job but hasn't actually looked for work in the last couple of months.

VANEK SMITH: U-3 would not count the line cook because she hasn't actively been applying for jobs. But Nick points out last year, a lot of cities were in lockdown. A lot of restaurants were closed, so it made sense not to be applying for jobs at times. So Nick thought U-3 got it wrong, and our line cook absolutely needs to be counted among the ranks of the unemployed.

WOODS: Still, Nick did not think that U-4 went far enough.

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AUTOMATED VOICE: Level five - U-5.

WOODS: So he was also looking at U-5, which counts all the U-4 workers, plus...

BUNKER: All the other people who are considered marginally attached to the labor force.

VANEK SMITH: Marginally attached - that is all of the people who want a job but haven't been looking recently for some reason. Unlike U-4, U-5 would include, like, an out-of-work lawyer who wanted to go back to work but wasn't applying for jobs because day care closed down, and he's having to watch his kids.

WOODS: Finally, the big finish...

(SOUNDBITE OF CHIMING)

AUTOMATED VOICE: Level six - U-6.

BUNKER: So U-6 - you take U-5, but then you add everyone who is working part time for economic reasons.

WOODS: Think of a barista who's working 20 hours a week but really wants to be working 40 hours a week. The cafe says, sorry, we can't afford to give you those extra shifts. A lot of economists said you need to call that barista too - underemployed workers. And U-6 got really high. The U-6 unemployment rate hit 20% last year.

VANEK SMITH: So what number are you paying the most attention to right now?

BUNKER: So actually, none of them.

VANEK SMITH: Really?

BUNKER: Yeah.

VANEK SMITH: Nick says U-3 needs to count way more people but also way fewer people. Nick says U-3 should be counting the line cook who wasn't applying for jobs during lockdown and the lawyer who's dealing with child care.

WOODS: But also, Nick says U-3 should not have counted workers who are on furlough or temporary leave from their jobs.

VANEK SMITH: This would be like a flight attendant whose job was on pause. Millions of workers were put on temporary leave last year.

WOODS: The Us counted our flight attendant as unemployed, but Nick says that flight attendant wasn't really unemployed in the traditional sense.

BUNKER: There's sort of this liminal space between unemployment and employment, and I think metrics that don't account for that kind of gave you a head fake during - especially the early days of the pandemic.

VANEK SMITH: I head fake meaning when you factored in all of the people who were temporarily unemployed and added them to all of the other unemployed people in the U.S., the numbers looked crazy, like Great-Depression-territory numbers. And Nick says the last year was economically devastating for the country and for millions of people, but he didn't think the numbers we were seeing were telling the whole truth.

WOODS: So to get a sense of what was actually going on with unemployment, Nick started looking at a different metric - a kind of U blend; so U-3 plus U-4, the discouraged line cook, and the U-5 lawyer watching his kids.

VANEK SMITH: But then minus the flight attendant on furlough - Nick says he thought this U blend paints the most accurate picture for the crazy time we've been going through. So I asked him, what story is U blend telling us?

BUNKER: Yeah, so I think the labor market actually is in a pretty good place right now.

VANEK SMITH: Really? Oh, my gosh, I was not expecting that. Like, that's, like, so nice. Like, (laughter) I just want to stop us right here, just enjoy this moment for a second.

BUNKER: You know, economics isn't always a dismal science.

VANEK SMITH: So here's Nick's U blend case for optimism. In the darkest days of the labor market last year, the U-3, U-4 and U-5 unemployment rates all topped 13%, the worst unemployment rate since the Great Depression. That number told a tale of an economy in terrible, terrible crisis.

WOODS: U blend, though, told a much less terrifying tale. It peaked at just over 6%. That's a high number, but it's nowhere near the Great Depression or even the Great Recession in 2008.

VANEK SMITH: And Nick says, of course, a lot of people who were on temporary layoff did end up losing their jobs permanently. But also, most of the people who were temporarily laid off did get their jobs back. Most of those jobs really were on pause.

WOODS: Nick says that U blend hasn't had the big dramatic swings of the other Us. It's dropped from a high of 6.3% to 5.8%. And that's what it was in June, 5.8%. It did not change from May.

VANEK SMITH: And the fact that Nick's U blend is now so close to the U-3 number that we hear every month - that 5.9% - that's probably a sign that most of the furloughed workers are now back at work and aren't being counted as unemployed anymore.

WOODS: So air horn.

BUNKER: That's definitely not an air horn moment. Anytime a number that you want to see go down sort of flatlines, that's not great. It's not horrifying. It's not terrible, but it's not the sort of really great news we were hoping for.

WOODS: Nick points out that there are still 9.5 million jobs that would exist right now if the pandemic hadn't happened, and it will probably take two or three years for the economy to create those jobs.

VANEK SMITH: Nick says he is waiting for that and also for the moment when the U-niverse (ph) of unemployment numbers will once again be something that is only interesting to other labor economists.

WOODS: That's the kind of universe I want to live in, Stacey.

Today's episode was produced by Brittany Cronin with help from Gilly Moon. It was fact-checked by Michael He. Kate Concannon is our editor.

AUTOMATED VOICE: This is NPR. Happy Jobs Friday.

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