R.I.’s unemployment is not worst by every measure

Rhode Island’s unemployment rate may be the highest in the nation at 8.3 percent, but a lesser-known metric ranks the state sixth highest – and lends insight into the state’s condition, local economists say.
That 8.3 percent rate is the standard monthly unemployment rate, known as Unemployment 3, or U-3, one of six metrics used by the U.S. Bureau of Labor Statistics. The so-called U-6 rate, measured quarterly and annually as opposed to monthly, counts populations not typically counted in the standard measure: discouraged workers, marginalized workers and part-timers who would prefer to be working full time, said R.I. Department of Labor and Training Assistant Director Donna Murray.
It’s not the case that the U-6 measurement is any more “real” than the standard unemployment rate, says Leonard Lardaro, an economist with the University of Rhode Island.
“You have to look at what is not counted: discouraged workers, people who have given up searching,” he said. “U-3 assumes if you’re physically able to work but you’re not actually seeking work, then you’re not both willing and able to work, so you’re not counted.”
Instead, says Lardaro, both the U-3 and the U-6 are “statistical glimpses that do different things, and neither is perfect.”
While the U-3 has been the standard because it is simpler to use, Lardaro says, the U-6, which also has been calculated for years, has begun to surface in the news as economists look for deeper insights into the nation’s and individual states’ economic conditions.
“We never had to use [U-6] because we never had any recession as bad as the last one,” Lardaro said. “We had high unemployment rates, but not like this.”
A state’s U-6 is typically higher than its U-3, but the measures move together, so the gap between them shrinks when the economy improves, but increases when the economy slows, said Edinaldo Tebaldi, an associate professor of economics at Bryant University.
In April, The New York Times reported that Dennis Lockhart, the Federal Reserve Bank of Atlanta president, said that tracking U-6 could help explain whether the economy is on a path to recovery. Lockhart indicated that he would be encouraged if the gap between national U-6 and U-3 drops back to the range of 3-4 percentage points it was at before the recession, instead of the 6 point range it is in now. In Rhode Island, the picture the U-6 provides is actually an improvement over what the standard unemployment rate indicates.
According to data provided by Tebaldi and Murray, Rhode Island’s standard unemployment, or U-3, was 5.3 percent in 2003, while its U-6 was 8.8 percent, leaving a gap of 3.5 percent. By comparison, in 2013, the U-3 was 9.2 percent, and the U-6 was 15.5, making today’s gap between the two almost double at 6.3 percent.
Nationally, Tebaldi said, by way of comparison, the U-3 in 2003 was 6 percent while the U-6 was 10.1 percent for a gap of only 4.1 percent, whereas in 2013, the U-3 was 7.4 percent and the U-6 was 13.8 percent, for a gap of 6.4 percent.
“The message is: there was a fundamental shift in the labor market in 2008-09 that caused the gap between U-3 and U-6 to more than double in size,” said Tebaldi, referring to the country as a whole during 2008-09. “It implies the labor-market conditions are still not that good, so that causes people to get discouraged. They think the likelihood of finding a job has decreased, so why put in resources.”
Murray said Rhode Island’s U-6 for 2013 may have been high, but U.S. Bureau of Labor Statistics tables reflect that Rhode Island is not as bad as Nevada, which had the highest U-6 of 18, or California, Oregon, Arizona and Illinois. However, of those states, only Nevada’s unemployment rate, or U-3, was worse than Rhode Island’s in 2013, the statistics show.
“We seem to have fewer discouraged workers,” said Murray. “We’re not No. 1 there [in 2013], but we’re still above the national average. Everybody wants that unemployment rate – whether … the U-3 or the U-6 – to be lower than what it is. The importance is to give you an idea … how we compare to other states: how do we compare over time.”
The lower volume of discouraged workers in Rhode Island is a good thing, Murray explained, but since the U-6 measure is seldom used, “people tend to think there’s a lot more than there are. Even prior to the recession, in 2006, there were two-tenths of a percent discouraged, [whereas] now we have twice as many, but it is [a] smaller [percent] than people think.” In his Current Conditions Index, Lardaro uses 12 different indicators to measure the Rhode Island economy’s monthly “momentum,” or economic change. He makes a point, he says, of not relying solely on the unemployment rate, but includes the labor force rate of increase or decline, to get a fuller picture of what is happening.
So what do the U-3 and U-6 readings mean for Rhode Island? Lardaro, at least, is blunt. The state went into the Great Recession in June of 2007, one of the first states in the country to do so, and was one of the last states to get out of it, in February of 2010, he said.
The U-6 ranking “tells us literally it could have been worse,” but the state needs “meaningful economic leadership” to avoid a “fiscal train wreck, which is when gambling is up and running in Massachusetts,” Lardaro said.
Gambling is Rhode Island’s third-highest source of revenue, and it will suffer “a major jolt” when Massachusetts venues open up, he said.
Renaming the R.I. Economic Development Corporation the R.I. Commerce Corporation, and other organizational government changes are “not going to get it done,” he said. “Unemployment is effect. The cause is lack of employment opportunity and economic momentum. So we need to cure those before we can make a dent in the unemployment rate.
And Rhode Island is really suffering an image problem nationally,” he added. “We’re now known more for our unemployment rate than our beaches. That’s not good.”
Each unemployment measure – from U-1 to U-6 – is constantly being revised, but nonetheless both Tebaldi and Lardaro agree that they are reliable and useful tools, even if there is, as Lardaro puts it, “some slippage” and change necessitated by the recurring updates.
The U-6 provides different information that than the standard rate, reflecting how workers feel, and the “mismatch” between the jobs the workers are seeking and the availability of them, Tebaldi said.
“We should pay attention to all measures from U-3 to U-6 and the others,” Tebaldi added. “At the end of the day, U-3 does a good job along those lines: It’s simple to understand.” •

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  1. FOR MORE DETAILED INFORMATION/EXPLANATION; Go to http://www.bls.gov/lau/stalt.htm (last updated on 4/25/14)…..
    FIFTEEN POINT FIVE PER CENT (15.5%) FOR R.I. AT LEVEL U6….(see chart at website….)