President Trump is considering a move that would increase the official unemployment rate by a full point, and it’s an idea that many liberals would be OK with.
That’s because it wouldn’t involve any workers losing their jobs. Rather, the new administration is considering switching the calculation the Labor Department uses as the official unemployment rate in place of a broader definition of what constitutes unemployment.
It’s not a bad idea, said Heidi Shierholz, until recently the Labor Department’s chief economist. Done properly, the change might give a better, more complex portrait of what is going on in the economy, she said. In any event, it wouldn’t do any harm. “It would not be that the unemployment rate has actually jumped. We’d just be using a different set of data to calculate it,” she said.
The Labor Department releases numbers on national unemployment every month, most recently stating that the official rate was 4.7 percent. Most news stories echoed that figure, but it was actually only one of six calculations the department releases each month, each using a slightly different definition of unemployed. The numbers are collectively known as U-1 through U-6.
The official rate, known as U-3, calculates people who are out of work and actively looking for a new job. Critics have said that is too narrow of a definition because it doesn’t include the people who are not actively looking for jobs but who might if they thought that there were opportunities available. The department does calculate that in a number called U-5. Another figure, called U-6, includes those people and the underemployed — people who technically have jobs but are not getting full-time hours or wages.
Currently, the U-5 unemployment rate is 5.7 percent, while the U-6 rate is 9.2 percent.
Among the critics of U-3 are Trump and his Cabinet. In a written response to questions from senators released last week, Treasury Secretary-nominee Steven Mnuchin said the figure was “not a sufficient indicator of labor market health.” He said the calculation nevertheless had “excessive influence” on labor policy because it was inevitably the one repeated in all news reports. He said the department should use U-5 instead.
Mnuchin was echoing an argument that Trump has repeatedly made in public statements. The same view has been advanced by liberals such as Democratic presidential candidate Sen. Bernie Sanders of Vermont. Conservative groups like the idea, too.
“Great idea. About time they dispensed with the accounting trick designed to make things look better for the people in power than they really are,” said Matt Patterson, executive director of Americans for Tax Reform’s Center for Worker Freedom.
Switching from U-3 to U-5 or U-6 would be easy to do, since the Labor Department puts out all six calculations at the same time. All the department would have to do is to write the monthly press releases slightly differently.
It is not clear exactly how and when U-3 came to be the “official” number. Labor Department spokesmen have told the Washington Examiner that the agency doesn’t have an institutional history on it. Shierholz, now with the liberal Economic Policy Institute, theorizes that U-3 was a consensus pick because most economists would consider it to be the most reliable indicator of the health of the labor market.
In terms of actual policy, she doesn’t think switching to U-5 would have much impact because labor economists at places such as the Federal Reserve already look at all six of the calculations.
“It is more a question of what psychological impact such a change would be” for the broader population, she said. The effect of saying the unemployment rate has been higher all along “could be jarring.”
But it could also be useful, she said, because it would force attention to the issue and make the public more aware of the different ways the rate is calculated. It could also result in interesting new statistical data because the U-3 numbers are currently the most often broken down and analyzed.
Finally, Shierholz said it would be good for the new administration to fully endorse an official government data set, noting that Trump often “throws shade” at federal data. “It would be fine and useful in terms of the administration saying, ‘We believe in a number,'” she said.
