Chart of the day: The ‘real’ unemployment rate is 8.2%

The headline U3 unemployment rate of 4.8% for September is probably an undercount of the number of out-of-work people in the United States.

Under the Bureau of Labor Statistics’ methodology, those who are out of work and no longer looking for a job are not counted as unemployed and are not included in the labor force. But when those people who would welcome the chance to work are included, the “real” unemployment rate jumps to 8.2%.

This roughly corresponds to another BLS measure of the jobless rate, the U6 underemployment rate, which counts those who are only marginally attached to the labor force and are insufficiently employed. That figure stands at 8.5%.

The labor force data in the September BLS household survey suggests what perhaps will be transitory effects of the health crisis and severe weather events. But it also points to underlying strains on the economy.

While the size of the labor force declined slightly in September—after a six-month upward trend—there was an expected increase in the number of those who were no longer in the labor force but wanted a job, coming after eight months of decline.

These are one-month snapshots, but they nevertheless add evidence to the argument that the labor market has yet to fully recover from the pandemic.

There are 3 million fewer members of the labor force compared to the February 2020 full-employment level, before the pandemic. What’s worse is that the number of those who want a job—but were excluded from the 4.8% unemployment rate—has increased by nearly 1 million and is 19% higher than pre-pandemic levels.

What’s clear is that the discouraging 194,000-job increase in September nonfarm payrolls highlights the enormity of the task ahead of us.

Not only do we need to grow the labor force back to its pre-pandemic trend, but the economy must also find a way to include those who have become discouraged and have technically been dropped out of the labor force.