Wednesday, January 13, 2010

U6 not the real unemployment rate

Cato says U6 is not the "real" unemployment rate.

I think U6 is attractive to permabears and "progressives" because it fits their pessimistic view of the world.

I don't think it matters whether you use U1, U2, U3, U4, U5, or U6, because they move in lock step with each other. Just pick one and stick with it. U3 is the official unemployment rate and is most widely reported.

What matters is not the unemployment rate per se, but the unemployment rate compared to the natural rate of unemployment (i.e. NAIRU, "full employment"). For U3, the natural rate of unemployment is about 5%, so when it's above that we know things are bad. If U3 falls much below 5%, inflation cometh. I don't know what the natural rate of unemployment is for U6, and I bet most people who insist on using it don't know either.


  1. I don't think it matters whether you use U1, U2, U3, U4, U5, or U6, because they move in lock step with each other. Just pick one and stick with it.

    Actually, "progressives" (i.e. non-glibertarian economists) have quoted U6 because neither U3 nor U6 measurements existed back in the '30s. Many arguments have been made that the U6 numbers more closely reflect the method of calculating "unemployment" in that era, therefore U6 is the better comparison. (I won't speak to the quality of those arguments).

    The sole focus of Cato at this point (well, at every single point in their history) is to provide "philosophical" cover for tax and service cuts.

    Of course Cato is going to argue that things aren't that bad; they want to head off a second round of stimulus. Facts on the ground are completely irrelevant.

    Of course, the catty, sophomoric tone of the linked article is just icing on the cake. Wingnut welfare at its finest.

  2. I'm guessing that if the Cato economist had said that U6 IS the real unemployment rate, oboe would have said "See, Cato just wants to make Obama look bad." After all, it was lefties who cited the "real" unemployment rate in the Bush years and "righties" who are doing it now. And Cato is applying the same standards it always did.

  3. Sure. Cato's nothing if not consistent. Got a surplus? Time for tax-cuts. Got a deficit? Time for tax-cuts. Leap year? Tax-cuts.

    It's doubtful if the Cato economist had said U6 was the real unemployment rate, I'd argue he was trying to make Obama look bad. I'd argue he'd found some angle to work U6 into an argument for cutting services and taxes. Because, irregardless of any contravening facts, that's what they do. Period.

    I've got no problem with advocacy organizations like Cato pursuing unwavering advocacy, but let's not pretend what they're doing has anything to do with economics. There are plenty of right-wing organizations that actually do economics; save your dudgeon for their critics.

  4. I don't think permabear or progressive economists quote u6 because of an idealogical worldview, but because its rarely mentioned in the media by non-economists. Everyone hears about U3, but its only part of the picture. Its useful to say to an uninformed public "here's what u3 means, and here's another measure u6 which means something else". I imagine most people think U3 is more inclusive than it actually is. As for the Cato article, it seemed snarky and shallow.

  5. "irregardless" Ha ha.

  6. permabears? progressives? that's a little black and white, isn't it? i mean, if you want to at least appear credible, you have to mention that most of the world is gray, verdad?

    that said, please look at the master plans documented by our own government and international organizations, and not the details down below, if you want to see where the ship is going. none of it is secret anymore and to pretend it is and to label those who would rather talk reality than fiction as "permabears" is a bit over the top.

    And it may wreak a bit of paid-for intention, if you know what i mean.

    what is your purpose here if you cling to only one view, a poorly-researched one-sided view, or a view that is paid for?

  7. Silly humans
    All the measurements are designed to make the govt look good,not to actually track how many people are out of work.

  8. Unemployment, both in the U.S. and the world as a whole, marches ever higher because the field of economics doesn't account for the relationship between population density and per capita consumption.

    Following the beating the field of economics took over the seeming failure of Malthus' theory, economists adamantly refuse to ever again consider the effects of population growth. If they did, they might come to understand that once an optimum population density is breached, further over-crowding begins to erode per capita consumption and, consequently, per capita employment.

    And these effects of an excessive population density are actually imported when a nation like the U.S. attempts to trade freely with other nations much more densely populated - nations like China, Japan, Germany, Korea and a host of others. The result is an automatic trade deficit and loss of jobs - tantamount to economic suicide.

    Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

    If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at

    Pete Murphy
    Author, "Five Short Blasts"

  9. To say that the natural rate of U3 is 5%, which is conventional wisdom rather than scientific fact, that U3 and U6 march in lock step, suggesting that there's a mathematical and deterministic relationship between the two, and then argue that U6 is unscientific because nobody knows the natural rate of unemployment as defined in U6 terms seems a bit, well, silly...

  10. Anonymous said...
    "and then argue that U6 is unscientific because nobody knows the natural rate of unemployment as defined in U6 terms seems a bit, well, silly..."

    I did not say U6 is unscientific. I also didn't say NOBODY knows the natural rate of unemployment as defined by U6. The stuff that seems silly to you is stuff I never said. You just seem to have trouble understanding English.

  11. "You just seem to have trouble understanding English."

    Actually that responder understood the spirit of your post quite well.

    Look, your language reflects a hardened, ideological view of economics. Don't get mad when people point this out. Not everyone is so sure of what they know as you are. And some people think that the more a person is SURE they know something, the less likely they know anything very valuable.

    It's clear that U-6 has some explanatory power.

    In sum, your post above is boringly terrible.

  12. Austen said...
    "Actually that responder understood the spirit of your post quite well."

    No, Austin, he didn't. The "spirit" of my post is no different than the actual text. He clearly didn't understand the actual text.

  13. The fact of the matter is that the situation on the ground is worse than the 10% figure. And it is only going to get worse. The fundamentals are terrible. We have no money of our own here. That which we have is borrowed money from places like China and Japan.

    The US Gov't encouraged debt via the Fed, Fannie, Freddie, Sallie Mae and a host of easy money programs. It also continues its own spending binge that only "stimulates" more debt. An idiotic policy.

    Now, China for one is slowly but surely swapping its rights to collect interest on debt in exchange for the right to sell the debtor's assets. It's basically the Mother of All Foreclosures.

    Rather than cut spending and pay debt, we spend more. It's leading to disaster.