Unemployment Statistics Are Misleading. Economic Hardship Is Much Worse

Editor's note, Nov. 23: This story has been updated to reflect current statistics. 

Is the US labor market as "healthy" as the headlines say? Not if you're looking at real lives. 

For months, we've been hearing how the US economy isn't in an official recession because of the strong job market and low unemployment. In the most recent report from the Bureau of Labor Statistics, October's unemployment rate was 3.7%. 

That single statistic, when below 5%, is commonly cited to promote a rosy financial picture. Except US households have been hit on multiple fronts: the dramatic increasing cost of basic necessities, deepening job insecurity and rising interest rates that make credit card debt worse and loans more expensive. 

The headline unemployment figure isn't just overly simplified. It distorts the true level of economic hardship. 

"The market is hurting in ways that the statistics don't necessarily reflect," said Darren Rumack, lead counsel on employment discrimination at the Klein Law Group in New York City. 

When analysts at the Ludwig Institute for Shared Economic Prosperity, a nonprofit research center focused on lower- and middle-income families, measured what they call the "true rate of unemployment" in October, it was 23.6%, more than six times higher than the official number.

Relying exclusively on a flawed metric to measure the "health" of the economy is misleading. Individuals who've given up looking for work aren't even counted as unemployed, while part-time employees or freelancers who might find only one hour of work per week -- financially unsustainable by any standard -- are treated as employed. Millions of others are actually "underemployed," meaning their jobs pay poverty wages or don't make use of their abilities. And then there are the faces behind the curtain: individuals with physical disabilities or restrictions that prevent them from rejoining the labor force, and low-income families, disproportionately Black and Latino, that are left struggling within the weakening social safety net. 

"We have to start talking about the quality of the work that is available to people," said Alissa Quart, author of the book Squeezed: Why Our Families Can't Afford America and executive editor of the Economic Hardship Reporting Project, an independent journalism hub around topics of inequality. "These jobs are not great, and they don't add up to security or sustainability for a lot of people, even in good times." 

What official figures tell us (and what they don't)

Let's start with the misconceptions. An unemployment rate of 3.7% does not mean that 96.3% of people in the US are gainfully employed. 

Nor does the official unemployment rate represent how many people are collecting federal unemployment insurance. A large percentage of people without jobs aren't even eligible to collect unemployment, such as independent contractors, as well as employees who quit voluntarily or were fired for cause. And a lot of workers who do qualify for jobless benefits remain without work long after their aid runs out, which is usually around 26 weeks. 

The BLS' unemployment data comes from the Census Bureau's Current Population Survey, which interviews about 60,000 eligible households each month. For the main BLS figure, called the U-3, the number of unemployed people is recorded as a percentage of the civilian labor force. Individuals are classified as unemployed if (and only if) they meet the following criteria: They must be currently available to work and must have looked for a job in the last four weeks. 

That means that someone without a job who is not "actively" seeking work -- whether due to pessimism, family obligations or multiple other reasons -- is considered outside of the labor force and excluded from the U-3 figure. 

"If you have an extremely low unemployment rate because you've got a whole bunch of people who don't think they'll be able to find jobs, that's not a healthy labor market. That's a discouraged labor market," said Ryan Luby, a researcher with the McKinsey American Opportunity Survey. 

In addition, nearly 40% of the US population isn't counted as part of the US labor force at all, including workers with disabilities, students, retirees, active-duty military members, stay-at-home caregivers, and people who are institutionalized or incarcerated. 

The bigger numbers go unreported

The widely cited U-3 rate doesn't accurately represent the reality of joblessness in this country, but the BLS has another metric -- called the U-6 -- that is more comprehensive and revealing, even though it's rarely mentioned by economists. 

By factoring in the unemployed who have given up looking for a job (called "marginally attached" workers), as well as workers who settled for part-time employment but would rather work full-time, the U-6 rate tends to be around double the headline U-3 rate. According to the U-6 rate since September 2021, joblessness has been between 6.7% and 8.5%. 

But even that broader government figure makes bad jobs and insufficient part-time work look better on paper than they really are, according to Gene Ludwig, chair of the Ludwig Institute for Shared Economic Prosperity, or LISEP. To calculate the "true rate of unemployment," referred to as TRU, LISEP's team considers people functionally unemployed if they work fewer than 35 hours a week but want full-time employment, or if they make less than $20,000 a year, which is an extremely low bar. 

By LISEP's measures, unemployment in October was 23.6%, closer to one-fifth of the labor force. And it's even higher when looking at certain gender, educational and racial breakdowns: The Black and Latino populations have a higher TRU than their white equivalents (28.2% and 25.9% compared to 22.5% respectively), and the TRU for women is steeper than it is for men (28.5% compared to 19.1%). The TRU for those with less than a high school education is double what it is for those with some college education (47.6% compared to 27.4%). 

Stranger things in the job market

Seismic shifts have taken place in the labor market over the last several decades. Yet the government uses an outdated definition of unemployment from the Great Depression, according to an American Economic Review paper by David Card. 

The methods for measuring who is "working" or "not working" are based on a time in the 1930s when people either had a factory, technical or educational job, or didn't at all. "Today, it's a much more complex environment," Ludwig said.  

For example, 36% of the labor force is now made up of "independent workers" -- contract, freelancer, temporary or gig workers (or people who hold full-time jobs with a side hustle) -- according to the American Opportunity Survey. Since independent work doesn't fit cleanly into most labor metrics, it's usually underreported and understudied. Nearly half of all immigrants, who make up a particularly vulnerable sector, classify as independent workers. 

And the promised financial autonomy of the "sharing economy" is wearing thin. Willy Solis, a gig worker since 2019 for companies like UberEats, GrubHub and DoorDash, finds it difficult to make ends meet. At the start of the pandemic, he was able to rely on the temporary expansion of unemployment insurance to gig workers, but that aid is no longer available. Because gig workers are misclassified as independent contractors, they aren't eligible to collect jobless benefits. The majority of independent workers also lack access to employer-based health insurance, retirement plans or workers' compensation. "The precarious nature of not being protected is front and center every single day," Solis said. 

The shift away from the model of a full-time job with one employer is part of an overall decline in middle-income financial stability. Since the 1970s and '80s, there's been a steep drop in skilled manufacturing jobs and rising employment in the fields of education, health and professional services, serving to widen the gap in earnings between those with and without a college education. In the past 40 years, overall wages for workers have stagnated (and not kept pace with inflation), unionization rates have plunged, and fewer employees are receiving guaranteed health or pension benefits. 

An uneven economic recovery 

Interpreting the employment situation during the COVID-19 pandemic has been especially complicated, according to Willie Powell, a research associate with the Harvard Kennedy School. Powell and others pointed out a major discrepancy in BLS reporting in key months during 2020 and 2021, which resulted in an artificially low jobless rate. Millions of workers on temporary layoff or furlough were misclassified as employed but "absent from work for other reasons," except a large percentage of them should have been counted as unemployed. 

Plus, as a result of stay-at-home orders and shuttered schools and services, there was an unusually large and rapid reduction in the workforce. What further impacted numbers was that many older workers retired earlier than expected due to the pandemic, dragging down labor force participation. Women also exited the labor pool at high rates due to the increased burden of childcare and eldercare responsibilities. Many industries, and individuals, haven't yet bounced back. 

"If you're confused about what the economy is doing right now, it's just because it's confusing," Powell said. 

What is clear, however, is that the pandemic-related recession both reflected and reinforced economic inequality. According to a July 2020 study by the Hamilton Project, COVID-19 exacerbated racial and gender gaps, with job losses disproportionately impacting Black people, Latinos, women and lower-wage earners. 

As for the jagged rebound, labor and employment lawyer Rumack observed "a transient nature to the workforce" right now. An increasing number of white-collar jobs are reorganizing around remote or hybrid schedules, which in turn is affecting blue-collar workers -- from maintenance and transportation to food service and retail -- that rely on in-person clientele. Both employers and employees are uncertain which industries are going to pick up. "Nobody knows what the fallout is going to be," Rumack said.  

Hiring, firing or … skewed statistics 

Why is there so much talk of job growth, unfilled vacancies and a labor shortage right now? Another commonly recited statistic to bolster the idea of a "hot job market" is that there are two job openings for every unemployed person. But this figure doesn't match reality for many jobseekers, who are finding limited opportunities and struggling to get hired. 

Experts point to several explanations for this disconnect. For one, a lot of available high-tech positions that require specialized skills and education simply don't have enough suitable applicants. And while low-pay service jobs might be out there, they're undesirable, especially ones that don't meet minimum wage standards or offer job protections. 

On top of that, many jobseekers are unable to perform certain duties due to COVID-related concerns, and they aren't finding flexible arrangements from management. Geography, or the location of available jobs, also plays a role. Not everyone is able to move to a different town or city for employment, and not all work can be performed remotely. 

"The job situation is not the same around the country," said Sarah Jaffe, labor journalist and author of the book Work Won't Love You Back. Given how distinct the labor environment is between and within states, it's not useful to make sweeping generalizations about employment across the US. Florida and California, for example, have completely different employment opportunities, wages and protections. Job numbers need to be disaggregated, Jaffe said. 

A similar misreading occurred with the buzz around the "great resignation" last year, when workers were reportedly quitting their jobs in droves. Jaffe and other writers have pointed out problems with such overstatements because big questions around data weren't being examined. What industries are workers actually resigning from and where? Why are they resigning? And what are they doing now? 

"People weren't quitting their jobs to just give up work and sit on their couches and eat bonbons," Jaffe said. In fact, many workers in the low-wage service sector were moving on to better jobs in other industries, which is more akin to a labor shift. 

The challenging truth 

So why is a single unemployment statistic used to determine the "health" of the job market? Like almost everything related to the economy, it's political. "The government would rather announce a jobless rate of 3% or 4%, not 10% or 12%," Rumack noted. 

Regardless of the official numbers, American households are living through a slow recovery and a difficult economic downturn, and it's expected to get worse. Federal Reserve Chairman Jerome Powell warned people to brace for more pain as the central bank proceeds with aggressive interest rate hikes to try to slow down the economy and "cool" the labor market. That means more job losses, fewer opportunities, reduced earnings and a declining standard of living. 

"If wages are low, conditions are bad and your average person can't buy a house, what does the unemployment rate tell us about the state of the world?" Jaffe asked. "Basically, not much."