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Alternative Measures of Unemployment

Minnesota's official unemployment rate is a useful indicator for the health of the state’s economy, but it doesn’t tell the whole story. We can get a more complete picture of Minnesota's labor market by looking at alternative measures of unemployment, and by breaking down the rates by age, gender, and race. The numbers below come from the Current Population Survey. Please note that all data below are presented as averages over the past 12 month, and thus do not fully reflect recent trends.

Broad Unemployment and Underemployment

The Bureau of Labor Statistics has developed six alternative definitions of unemployment and underemployment, labeled U-1 through U-6. The official unemployment measure, called U-3, is the share of those aged 16 and over who, at the time of the monthly survey, were not employed in the past week and who have looked for work sometime in the past four weeks. Importantly, this excludes anyone who was not seeking work in the past month for any reason. These people are considered “not in the labor force.” The official unemployment rate declined to 3.6 percent in October, with a small decline of 0.1 percentage points from 12 months ago. Note that the U-3 number reported in this analysis may differ slightly from the official state unemployment estimate, because the official rate is calculated using a different method by the LAUS program. The number reported here is directly comparable to the other rates in this analysis.

What about people who want a job, but aren’t actively searching because they think there are no jobs available that fit their qualifications? These “discouraged workers” are considered to be out of the labor force, but they reveal additional untapped potential in the labor market. People who have looked for work in the past year, but stopped looking for the past month because they think they cannot find a job are included in a broader measure of unemployment called U-4. This rate tends to closely follow the U-3 rate, and it also declined slightly to 3.8 percent in October, with a small decline of 0.1 percentage points from 12 months ago.

What if we add all the other “marginally attached” workers, people who looked for work sometime in the past twelve months but, for other reasons, did not look in the past four weeks? These marginally attached workers increase the count of unemployed still further in the U-5 measure. In October, the U-5 rate declined to 4.2 percent, with an over-the-year decrease of 0.3 percentage points.

The broadest measure of unemployment is U-6, which includes all of the above and adds people who are employed part-time but want full-time work. The U-6 rate has historically been about twice the official unemployment rate (U-3). In October, U-6 was 6.8 percent, down from 7.0 percent in September. Both U-6 and the component of U-6 measuring underemployed part-time workers fell from their levels 12 months ago, by 1.0 and 0.7 percentage points, respectively. The U-6 rate is now at its lowest level since April of 2002, when the economy was still recovering from the recession of 2001.

The chart below shows that all of the alternative measures tend to behave in very similar ways over time. It is notable that all of the alternative measures have been falling since their peak in late 2009, and have leveled off since mid-2015, with only small changes up and down since then.

Alternative unemployment rates in Minnesota as of October 2017:

Measure*

Oct-17

Sep-17

Oct-16

Monthly Change

Annual Change

U-3

3.6

3.7

3.7

-0.1

-0.1

U-4

3.8

3.9

3.9

-0.1

-0.1

U-5

4.2

4.4

4.5

-0.2

-0.3

U-6

6.8

7.0

7.8

-0.2

-1.0

Involuntary Part Time

2.6

2.6

3.3

0.0

-0.7

*Definitions of Measures:
U-3 Official unemployment rate
U-4 Discouraged plus officially unemployed
U-5 All marginally attached (including discouraged) plus officially unemployed
U-6 Involuntary Part Time plus marginally attached, discouraged, and officially unemployed
Involuntary Part time—a component of U-6, including only persons working less than 35 hours per week who want, but cannot find, a full-time job


line graph- Minnesota Unemployment and Underemployment

 

The long-term unemployed

Long-term unemployment—lasting more than 26 weeks (six months)—imposes costs on people that go well beyond lost wages. Future earnings are lower, and health, relationships, and self-esteem can suffer. Long-term unemployment, and the share of long-term unemployed among all unemployed, have been following a downward trend since late 2011. Both of these series appear to have hit bottom in mid-2015 and have only slightly fluctuated up and down since then. It is important to note that the percentage of long-term unemployed persons represents a share of unemployed persons only, while other unemployment rates represent a share of the entire labor force which includes all persons age 16 or older who are working or looking for work.

Long-term unemployment in Minnesota as of October 2017:

Measure*

Oct-17

Sep-17

Oct-16

Monthly Change

Annual Change

Number Long Term

14,300

14,700

13,400

-400

+900

Share Long Term

12.9

12.8

12.0

+0.1

+0.9

*Long term is defined as more than 26 weeks. The share of long term is expressed as a percentage of all unemployed (U-3).


graph- Minnesota Long-Term Unemployed


Unemployment by age and gender

We can often find interesting differences when we break out unemployment rates by age and gender. Teen unemployment dropped to 11.8 percent in October. This month registered the lowest rate since May 2017, although it was still higher than the rates seen in 2016 and early 2017.

Recent increases in teen unemployment coincides with an increase in the state minimum wage to $9.50 per hour ($7.75 for those under 18) in August 2016, which is notable because minimum wage rules tend to apply disproportionately to teen workers. The minimum wage increase may have contributed to higher teen unemployment both by making employers more reluctant to hire, and by increasing the labor force participation of teens who know they can now make higher wages if they work. In fact, teen labor force participation increased significantly during this period, while the number of employed teenagers has only moved slightly up and down with no clear trend. Without further analysis we cannot say how much of the recent increase in both labor force participation and teenage unemployment is due to the higher minimum wage.

The unemployment rate among men dropped to 4.3 percent in October, which continues a run of over twelve months with little change. The unemployment rate among women may have hit the bottom of a long downward trend in summer of 2016, when it reached a low of 2.7 percent, from a summer 2011 high of 6.3 percent. After a five-month rise following summer, peaking at 3.4 percent in January, the unemployment rate among women has since trended slightly down, most recently to 2.9 percent in October.

Unemployment rates by age and gender in Minnesota as of October 2017:

Group

Oct-17

Sep-17

Oct-16

Monthly Change

Annual Change

Teenagers

11.8

12.6

8.6

-0.8

+3.2

Women

2.9

3.0

2.9

-0.1

0.0

Men

4.3

4.4

4.5

-0.1

-0.2


line graph- Minnesota Unemployment by Age and Gender


Unemployment by race or ethnicity

When we break out unemployment rates by race, we find that some communities face greater challenges than others. Black unemployment decreased by 0.5 percentage points to 8.0 percent in October, for a 0.4 percent decrease over-the-year. While this is still among the lowest rates seen in records dating back to December 2001, the Black unemployment rate is more than double the White unemployment rate. White unemployment decreased from 3.1 percent in September to 3 percent in October. Hispanic unemployment decreased slightly from 5.3 percent in September to 5.1 percent in October. It should be noted that due to relatively small sample sizes, the calculated unemployment rates for Black and Hispanic individuals are more susceptible to random measurement error.

Also see the American Community Survey for a broader selection of unemployment data by race or origin, including White, Black or African American, Hispanic or Latino, American Indian and Alaskan Native, Asian, and more. Population profiles for all available races are available for download below. Note that the American Community Survey data are collected and calculated by a method which differs from the Current Population Survey numbers shown in this report. American Community Survey 1-year Population Profiles for All Available Races in Minnesota can be found for years 2014 and 2015 at this link . Data from 2016 has been released by the Census Bureau in September.

Unemployment rates by race or ethnicity in Minnesota as of October 2017:

Group

Oct-17

Sep-17

Oct-16

Monthly Change

Annual Change

Black

8.0

8.5

8.4

-0.5

-0.4

White

3.0

3.1

2.9

-0.1

+0.1

Hispanic

5.1

5.3

6.0

-0.2

-0.9


line graph-Minnesota Unemployment by Selected Race or Ethnicity


Looking ahead

Generally low and stable unemployment and underemployment mean that Minnesota’s economy is running very close to its full potential. In fact, it now appears that overall unemployment may have reached a minimum in 2017. There are also different trends seen when breaking the numbers out by racial groups, which shows that there is still room for improvement in the employment situation in the state.

Notes on using Current Population Survey state data:
Data above are presented as 12-month moving averages. Each monthly data point is an average of that month and the previous 11 months. Twelve-month moving averages are calculated differently than the official estimates of unemployment and should not be compared directly. Learn more about using CPS subnational data at
www.bls.gov/gps/notescps.htm .

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