BusinessDaily.eu – Mikkel Egesberg – In the last article, I pointed out how the real US unemployment might be higher than is posted in the official stats. Some workers are no longer registered as unemployed, since they have given up looking, we call them “discouraged workers”. The official “U-3” unemployment rate does not include these “discouraged workers”, but the broader measure, the “U-6” unemployemt rate, does, for which reason its higher. Here is an example:
Let’s say that you have 10 jobless workers, and 100 workers in the labourforce, the unemployment rate is then 10%, but if 5 of these unemployed workers suddenly no longer recieve benefits in the US, and have been looking for jobs for a long time, they might be “discouraged”, and stop looking and they are then no longer counted as people looking for jobs, we then have 5 unemployed out of 100 workers, and the unemployement rate is cut in half (5/100=5% vs. 10/100=10%). Its a problem with the numerator.
When people talk about high youth unemployment in e.g. Spain, and quote an around “50% unemployment rate”, there is also a problem, but its with the denominator instead.
Say that there are 10 spanish young people who are unemployed, out of 100 young people.
If 50 of these young people enters a University to get smarter, they leave the labor force, and there are now 10 unemployed out of 50 instead of out of 100, and the Spanish “unemployment rate” for young people doubles (10/100 = 10% vs. 10/50 = 20%), eventhough there are no more young people unemployed.
True, Spains unemployemnt rate is high for young people, but there are problems with using this statistics. Like the “U-6” unemployemnt rate might be a better measure of the “real” unemployment in the US, instead of the “U-3”, what economists call the “youth unemployment ratio” might be a better statistics for youth unemployment in Spain and other places.
As you can see, the youth “unemployment rate” for Spain is 48,9% in fourth quarter 2011, but the “unemployemnt ratio” is just 19%, much lower than, what is indicated when people say 50% youth unemployment.
My point is, as U-6 might be a better measure than U-3, the “youth unemployment ratio” might also be a better measure than the “youth unemployment rate”…