U.S. Unemployment Understated in Recent Data
Demographic and statistical factors lower unemployment rate by 1.4 percentage points
For Immediate Release: March 19, 2009
Contact: Alan Barber (202) 293-5380
WASHINGTON D.C.- 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.