• Economists argue that the official (U3) unemployment rate significantly underestimates the true extent of the...

• Economists argue that the official (U3) unemployment rate significantly underestimates the true extent of the problem. Explain why.

Expert Solution

The “underemployment rate, is the Bureau of Labor Statistics’ most comprehensive measure of labor market slack. It includes not just the officially unemployed and the marginally attached (jobless workers who want a job and are available to work but have given up actively seeking work), but also people who want full-time jobs but have had to settle for part-time work. This measure decreased from 14.3 percent to 13.8 percent over the last month, largely due to a 350,000 decline in “involuntary” part-time workers. After increasing from last spring to last fall, the number of involuntary part-timers, at 7.6 million, is now back down to just under where it was a year ago. It remains much higher than before the recession began, however; in 2007, the average number of involuntary part-timers was 4.4 million.

Despite ongoing improvements, the labor market still has a deficit of close to 9 million jobs, and the lack of demand for workers means labor force participation is low, unemployment is high, and wage growth is depressed. Today’s report was a reality check; there is no sign of momentum in the labor market or acceleration in job growth. The nation’s labor market remains weak, and we continue to need aggressive fiscal stimulus to create jobs. Instead, Congress and the administration were unable to avoid sequestration, adding to the already-considerable fiscal drag on the economy, which was not a big factor in today’s report but will reach full force this spring and summer.

Rahul Sunny answered 2 years ago

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