US Unemployment Understated in Recent Data

As
the nation struggles to get a sense of the depth of the current
recession, a new report from the Center for Economic and Policy
Research (CEPR) demonstrates that the current unemployment rate is
higher than conventionally measured and is already at roughly the same
level as the high reached in 1982, the year with the highest
unemployment rate since World War II.

"February's unemployment rate of 8.1 percent is bad news, but the
unemployment picture is even worse than it looks," said report author
and CEPR Senior Economist, John Schmitt.

The report, "Is the U.S. Unemployment Rate Today Already as High as It was in 1982?,"
adjusts the current unemployment rate to account for demographic and
statistical differences that lower the unemployment rate today by 1.4
percentage points, relative to the official unemployment rate in 1982.
After these adjustments, the current unemployment level rises to 9.5
percent, a level that is close to the 1982 average of 9.7 percent.

"After accounting for these demographic and statistical differences,
today's unemployment rate rises to 9.5 percent, already on a par with
the worst recession since the Great Depression," said Schmitt.

The report notes that the population today is substantially older than
it was in the early 1980s, which has the effect of lowering the
unemployment rate today relative to the past. Young people have a
higher unemployment rate than older workers because the young change
jobs more frequently and are more likely to move in and out of the
labor force. In 1982, about 22 percent of the labor force was between
the age of 16 and 24; in 2008, 16-to-24 year olds were only about 14
percent of the labor force. As a result, the age of the typical US
worker has risen from 35 in 1982 to about 42 today. Adjusting for this
aging of the population raises the unemployment rate in 2009 by 1.2
percentage points.

The report
also analyzes the effects of the falling coverage rate in the Current
Population Survey (CPS), the monthly survey that the government uses to
measure the national unemployment rate. Due to a decline in cooperation
with both public and private surveys, the CPS today misses a larger
share of the population today than it did in the early 1980s. The CPS
has techniques that correct for the impact of this decline in coverage
for most purposes, but the current correction procedures do not work
well for employment-related measures such as the unemployment rate.
Adjusting for the rise in coverage since 1982 would add at least an
additional 0.2 percentage points to the 2009 unemployment rate.

The full analysis of the impact of these effects on the current unemployment rate can be found here.