- NEW YORK (Reuters)
-- Buried inside the official U.S. employment report each month is a little-known
figure that gives a much less rosy picture of the labor market than the
headlines.
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- The government agency that produces the data also publishes
an alternative measure that tries to capture the hidden unemployed, those
who are not included in the official unemployment rate for various statistical
reasons.
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- That broader measure is dramatically higher, at 9.7 percent
in May, compared with the official level of 5.6 percent.
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- That's an extra 5.96 million people, in addition to the
8.2 million "officially" unemployed, who are waiting on the sidelines
and may at some point step back into the labor force.
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- Although it receives little notice, the adjusted jobless
rate has important implications for Federal Reserve policy-makers because
it suggests the job market will not tighten as quickly as some in the financial
markets believe.
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- "It shows there is more slack in the labor market
than appears on the surface and as job opportunities improve, we'll see
people re-entering the labor force to search for work," said former
Fed Governor Lyle Gramley.
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- "That means fears that inflation is about break
out all over the place do not seem warranted," he said in an interview.
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- The Federal Reserve is widely expected to start raising
interest rates later this month, as the economy recovers from the 2001
recession and job creation picks up. But the Fed can boost rates at a slower
pace if inflation is not a big threat.
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- DISCOURAGED WORKERS
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- The Labor Department's adjusted measure of unemployment
adds in people it describes as "marginally attached" to the labor
force. These are workers who have not actively looked for work in the past
four weeks, including "discouraged workers" who have given up
altogether. They also include those who have given up looking for full-time
jobs and have settled for part-time work instead.
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- None of the unemployment measures include the 1.7 percent
of the male wage-earning population who are in prison, or another 1.36
million men, according to the Bureau of Justice Statistics.
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- "We have had this unprecedented withdrawal from
the labor force over the past three years," said Lee Price, research
director at the independent Economic Policy Institute. "The traditional
measure of labor market slack, the unemployment rate, is giving us a misleadingly
tight picture."
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- Indeed, the labor force participation rate is at its
lowest level since 1988 -- lower even than in the last recession.
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- Financial markets and private-sector economists pay little
attention to the alternative measure of joblessness, and a search of the
Federal Reserve's entire database of research turned up only two articles
on the topic.
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- The author of one of those papers, economist Yolanda
Kodrzycki at the Boston Fed, said the broader measure is "very helpful,"
although it tends to move in tandem with the official rate.
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- On Wall street, analysts generally hold upbeat views
on the economy and accept the unemployment rate at face value, said HSBC
Chief Economist Ian Morris. "There is a whole debate to be had on
unemployment, but it's not happening," he said.
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- The adjusted measure shows "unemployment remains
stubbornly high and higher than it should be at this point in the cycle,"
said Jose Rasco, senior economist at Merrill Lynch.
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- Federal Reserve officials seem to be aware of the limits
of the reported unemployment rate.
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- Fed Governor Donald Kohn noted in a speech last week
that many people who left the work force because of poor prospects are
probably ready to rejoin the market.
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- "If that is correct, then the current level of the
unemployment rate ... may, if anything, understate the availability of
labor resources," Kohn said.
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- The return of the uncounted into the work force will
also slow the improvement in the official rate, and could actually send
it higher, even as new jobs are being created.
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- - The alternative measure can be found on Http://www.bls.gov/news.release/empsit.t12.htm
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