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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.

Alternative measures of unemployment

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.” Note that the U-3 number reported in this analysis may differ slightly from the official state unemployment estimate, because here we use a 12-month moving average.

But 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” 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.

And 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.

And finally, U-6 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 June, U-3 was 3.8 percent while U-6 was 7.5 percent.

The official unemployment rate held steady at 3.8 percent in June, with a small over-the-year increase from 3.7 percent 12 months ago. U-4 and U-5 also remained steady in June while increasing by 0.1 percent over-the-year. Both U-6 and the component of U-6 measuring underemployed part-time workers fell from their levels 12 months ago, by 0.3 and 0.5 percentage points, respectively. 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.

Minnesota over-the-year changes in alternative unemployment rates as of June 2017:

  • U-3 Officially unemployed, 3.8 percent, compared to 3.7 percent 12 months ago
  • U-4 Discouraged plus officially unemployed, 4.0 percent, compared to 3.9 percent 12 months ago
  • U-5 All marginally attached (including discouraged) plus officially unemployed, 4.6 percent, compared to 4.5 percent 12 months ago
  • U-6 Part-time underemployed plus marginally attached, discouraged, and officially unemployed, 7.5 percent, compared to 7.8 percent 12 months ago
  • Part-time underemployed—a component of U- 6, including only persons working less than 35 hours per week who want, but cannot find, a full-time job—is 2.9 percent, compared to 3.4 percent 12 months ago


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 has been following a downward trend since late 2011.

Minnesota over-the-year changes in long-term unemployment as of June 2017:

  • Statewide, the number of long-term unemployed persons was 13,900 compared to 16,300 persons 12 months ago
  • Statewide long-term unemployed as a share of total unemployed (U-3) was 12.0 percent, compared to 14.7 percent 12 months ago

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.


line 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 fell by 0.3 percentage point to 12.1 percent in June, but has been on a general upward trend that started in early 2016 and accelerated in late 2016. Last month (May) registered the highest rate since September 2014, although it still was below the rates seen during the years 2003 through 2013. This recent increase in teen unemployment coincides with an increase in the state minimum wage to $9.50 per hour 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, and the number of employed teenagers actually increased by 1,600 over the year ending in June. However 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 dipped to 4.3 percent in June after remaining steady between 4.4 to 4.5 percent over the previous twelve months. 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, the unemployment rate among women has remained steady at 3.3 percent since March.

Minnesota over-the-year changes in unemployment rate by age and gender as of June 2017:

  • Teens (age 16-19), 12.1 percent, compared to 7.7 percent 12 months ago
  • Men, 4.3 percent, compared to 4.5 percent 12 months ago
  • Women, 3.3 percent, compared to 2.7 percent 12 months ago
  • All workers statewide, 3.8 percent, compared to 3.7 percent 12 months ago


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 increased by 0.3 percentage points to 8.4% in June. 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 remained stable at 3.1 percent, its highest level since February 2015. Hispanic unemployment increased slightly from 5.3 percent in May to 5.5 percent in June. 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 .

Minnesota over-the-year changes in unemployment rate by race or ethnicity as of June 2017:

  • Black or African American, 8.4 percent, compared to 9.7 percent 12 months ago
  • White, 3.1 percent, compared to 2.9 percent 12 months ago
  • Hispanic or Latino, 5.5 percent, compared to 4.7 percent 12 months ago
  • All workers statewide, 3.8 percent, compared to 3.7 percent 12 months ago

 

line graph- Minnesota Unemployment by Selected RAceor 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 mid-2016. By looking at race, age, gender, and additional measures of unemployment, we see that the slight increases in overall unemployment since last summer are largely concentrated among women and teens. 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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