Underemployment Rate

Posted by Bull Bear Trader | 4/03/2008 09:50:00 AM | | 0 comments »

CNN Money mentions that while an unemployment rate of 5% has historically been referred to as full employment, the media and economists now consider it a sign of a recession. The change comes mainly from the way people are now employed. More people are taking part-time jobs, and while not technically unemployed, they may be underemployed.

The unemployment rate is also based on the household survey. When people simply give up, they are taken out of the pool of people "looking for work", thereby affecting the unemployment rate number. Another change is the number of contractors and those that are self-employed. Recently there has been a decline in the number of independent contractor employees. These employees are counted in the household survey, but not the payroll survey (they are not on the employer's direct payroll). They are also usually the first to be cut in a downturn, since they are cheaper to layoff, given severance and benefit issues. In total, it is believed that there were 565,000 additional part-time workers looking for full-time positions, compared to last year, giving a 21.1% jump in the number of underemployed people. This brings the broader measure to 8.9% in February.