U2: The Real Unemployment Rate

One out of every five Americans was either unemployed or underemployed in 2009. The rates of underemployment were higher in rural counties than in the cities.

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Witnessing reports of the nation’s near double-digit unemployment rate, some people argue that the situation is much worse.  

The critics have a good point. To understand the impact of this recession, it’s important to note that by 2009 one in five people (20%) in both rural and urban America was either looking for a job, willing to work longer hours, had multiple jobs or had given up looking for work entirely.

The official unemployed are only those who have been “actively looking” for jobs during the four previous weeks. The standard definition of “unemployed” therefore ignores a large number of people who would be working full time if they had the chance.

The unemployment rate doesn’t count so-called “discouraged workers,” those who have not looked for a job for a year. It doesn’t include those who stopped looking for a job four weeks prior to the survey (termed “marginally attached workers”). Nor does it include either those who are working part time but want full time work or people who are working more than one job.

To get a better handle on the true number of unemployed, we calculated a broader unemployment rate, one that includes all of these underemployed workers. 

We used a variety of government data, from the Census to the Bureau of Labor Statistics. We then combined this data using a methodology developed by the Virginia Economic Development Partnership.

The new rate is the sum of underemployed workers plus the unemployed, all divided by the total civilian labor force. We call it the “U2” rate, not because it is endorsed by Bono, but because it combines two “U’s” — underemployed and unemployed workers.

The U2 rate gives a much more accurate picture of the national labor market than does the simple unemployment rate. The U2 rate is higher, of course, and it also varies across regions.

So, how do the U2 rates look across the nation?

The next three charts show the official unemployment rate in green and the U2 rate in red over the past five years. We are particularly concerned with how the U2 rate in rural America.

As you can see, the difference between the unemployment rate and the U2 rate is fairly consistent from rural to urban counties. Also, there was a greater increase in the U2 rate between 2008 and 2009 than there was with the unemployment rate. This period coincides with the depth of the recession, indicating that the U2 rate was more sensitive to the economic downturn than the more common unemployment rate.

First, though, let’s look at the unemployment rate and the U2 rate for the nation as a whole. The green line is the official unemployment from 2005 through ’09. The red line is the U2 rate. Again, this chart represents national rates.

[img:U2US.jpg]By 2009, the national unemployment rate was of 9.3% compared to a U2 rate of 21.2%, a difference of 11.9 percentage points. The U2 rate of true unemployment was more than double the official rate.

Between 2008 and 2009 the unemployment rate increased 3.5 percentage points. During that same period, the U2 rate increased 5.1 percentage points. 

Urban and exurban U2 rates are shown below.

[img:U2Urban1.jpg]By 2009, the urban/exurban unemployment rate was 9.2% compared to a U2 rate of 21%, a difference of 11.8 percentage points. Between 2008 and 2009 the urban unemployment rate increased 3.5 percentage points, while the U2 rate increased 5.2 percentage points.

Finally, here is the chart showing the unemployment rate and U2 rate in the nation’s rural counties.

[img:U2Rural.jpg]By 2009, the rural unemployment rate was of 9.6% compared to a U2 rate of 21.9%, a difference of 12.4 percentage points. Between 2008 and 2009 the rural unemployment rate increased 3.5 percentage points compared to an increase of 4.7 percentage points in the U2 rate.

The gap between the unemployment rate and U2 rate is slightly higher in rural counties than in either urban America or the nation as a whole. 

[img:U2ALL.jpg]The chart above compares the U2 rate in cities, rural America and in the nation as a whole from 2005 to 2009. 

Both before this recession began in December 2007 and after, rural America has had a higher U2 rate than either the nation as a whole or urban counties. By 2009, this rural/urban difference in the U2 rates was diminishing.

U2 changes the map of unemployment. Below are two maps. The first shows the unemployment rate in every U.S. county for 2009. The counties are divided into four groups according to their unemployment rates. The darker the color, the higher the unemployment rate.

The second map shows the U2 rate in every county in 2009. Again, the higher the U2 rate, the darker the color.

Here is the map showing the unemployment rate by county in 2009. To see a bigger version, click on the map.

[img:UR528.jpg]And here is the map showing the U2 rate by county in 2009. Again, click here or on the map to see the full size version.

[img:U2528.jpg]The maps show some regional differences. For instance, in terms of straight unemployment, Nebraska and South Dakota counties primarily show the lowest unemployment rates. But when the map is drawn using the U2 rate, these two rural states don’t look as prosperous. Their U2 rates are higher.

Similarly, the Southeast is not faring quite so poorly as recent unemployment statistics suggest. Alabama, Florida, and North Carolina all have high unemployment rates, but relatively lower U2 rates.

For the record, in 2009 Jefferson Davis Parish in Louisiana had the lowest U2 rate in rural America, at 11.9%. Many rural Louisiana parishes had low U2 rates.

Baraga County, Michigan, had the highest U2 rate among all rural counties, at 38.3%. Imperial County, California, an urban county, had the nation’s highest U2 rate — 42.8%.

To better understand the U2 rate and which factors impact it the most, we used statistical analysis to find those factors that tended to increase or decrease the U2 rate.

Education was particularly important. As the percentage of the adult population with only a high school education rose, so did the U2 rate. That’s true in rural and urban counties. 

As the proportion of adults with college degrees rose, the U2 rate fell. That was true across the nation.

Also, as the percentage of “creative class” jobs grew, the U2 rates fell. (Creative class jobs include occupations such as business ownership and top management, science, engineering, architecture, design, arts, and entertainment. This is the category devised by economist Richard Florida.) Again, this finding held true in both rural and urban counties.

There are differences in what drives the U2 rate in rural and urban counties. As the percentage of Hispanic adults rises in cities, the U2 rate goes up. A higher proportion of Hispanics in rural counties is associated with a decline in the U2 rate, however.

More service sector jobs in rural counties is associated with a higher U2 rate. Having more production jobs (mining, manufacturing, construction and farming) decreases the U2 rate in rural counties. There is no relationship between these kinds of jobs and U2 in cities.

A higher percentage of African Americans increases the U2 rate in rural counties, but decreases the rate in cities.

To summarize, there are a lot more people looking for full time work than the regular unemployment rate (which rose to 9.8% in November) implies — more than twice as many. The U2 rate (counting under- and unemployed) rose particularly fast during this recession and remains higher in rural America than in the cities.

Some rural areas that have low unemployment rates have relatively higher U2 rates. Meanwhile, some parts of the country with persistently high unemployment rates are better off measured by U2.

Roberto Gallardo is a research associate at the Southern Rural Development Center at Mississippi State University and a regular Daily Yonder contributor.


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