The Dark Bid Wage-Adjusted Unemployment Rate is 24%
Daniel Drew, 1/9/2015
On the first Friday of the month, the Bureau of Labor Statistics releases the monthly unemployment rate data at 8:30 - or 8:29 for select high frequency trader participants. The BLS has become one of the largest punching bags in the financial industry because of their generally useless official unemployment rate. They have even tried to deflect some criticism by publishing a separate report called "Alternative Measures of Labor Underutilization," which is the economist way of telling you you're screwed. According to the more accurate data in this report, the unemployment rate is actually 11.4%, which is a lot higher than the official rate of 5.8%. It just shows there is no single way to calculate unemployment.
Not all jobs are created equal, but the unemployment rate does not acknowledge that fact. I calculated the unemployment rate using a new proprietary method.
When people see the official unemployment rate, they might interpret it as "6% of the population is having a difficult time. Everyone else is ok." The unemployment rate has become the de facto national pain index. However, in this regard, it is woefully inaccurate. It is not milk and honey for all of the "employed." Anyone making less than $15 per hour does not sleep well at night. Some might only sleep several hours as they work two jobs. They are not "employed" the way some people are, with matching 401k contributions, bonuses, company retreats, and a career path. How can these jobs even be counted the same way? They are fundamentally different things that require alternative calculation methods.
Most Common Low-Paying Jobs
Most Common High-Paying Jobs
The trend of inadequate compensation has been getting worse for the last 40 years. Workers used to be paid about 50% of GDP. Now, that number is approaching 40%. That means more for the 1% and less for the average worker.
The McJob Recovery
Since the beginning of the recession:
Lower-wage industries employ 1,850,000 more employees.
Mid-wage industries employ 958,000 less employees.
High-wage industries employ 976,000 less employees.
Methodology for the Dark Bid Wage-Adjusted Unemployment Rate
This methodology merely provides a quick conservative estimate, as many low-paying jobs are excluded from the count. Jobs that pay less than $15 and are in job categories with a median wage above $15 are excluded. Other jobs are also excluded from the count. For example, if a job has a median wage of $13, anyone making between $13 and $15 is excluded from the data because the number was divided by 2. Creating a more accurate calculation would require access to internal data at the BLS, whic obviously is not feasible. Since this is such a conservative estimate, the true picture is even more grim.
View the data for the National Occupational Employment and Wage Estimates provided by the BLS. Copy and paste the data into Excel. Filter by "detail only" to avoid double counting (some "jobs" are actually job categories). Some of the earlier data does not have this column, so you must divide by 4 instead of 2 to avoid double counting. Then filter the median hourly wage between $7 and $15. You must put a minimum to avoid some of the footnoted occupations that are excluded from the hourly estimates by the BLS. Sum the number of jobs that are on the list. Then divide by 2 (or 4 for data without the detail column). Since it's a median hourly wage, half of the employees will have a wage over the median, so that is why it's necessary to divide by 2.
Look at the labor force size at the time the wage data was released, which is in May of whatever year you are calculating. Look at the official unemployment rate for that time. Multiply the unemployment rate by the labor force size to see how many people were officially unemployed. Then add the low-paying jobs to that number. Finally, divide the new sum by the labor force size to calculate the wage-adjusted unemployment rate. For 2014 data, I estimated the adjusted rate by using the 2013 wage data because the BLS has not yet released wage data for 2014. For the unemployment rate and labor force size, I used December 2014 data.
You can adjust the rate to whatever wage amount you prefer to define as "low wage." If you think anything less than $10 is low wage, then reapply the filter and run the calculations again. Or maybe you think anything less than $20 is low. It's up to you. I chose $15 because that is about twice the official poverty line for a two-person household. $15 per hour is (2000*15) $30,000 per year. The poverty line for 2 people is $15,730.
The Dark Bid Wage-Adjusted Unemployment Rate is subject to the same limitations as the official unemployment rate because they both use the same denominator: the total labor force. This is the number the BLS loves to manipulate.
The only reason the official unemployment rate is dropping is because people have quit trying, which means they have dropped out of the official labor force. According to the geniuses at the BLS, someone getting a job and someone giving up should have the same effect on the unemployment rate. They have essentially died - they are wiped from the data.Since the labor force is such a consistently understated number, that means even the Dark Bid Wage-Adjusted Unemployment Rate is a conservative estimate of the true unemployment rate.
Let us not forget this chart from the depths of the recession, which is a clear reminder that unemployment is not the whole picture. You have to look at total underutilization, which includes the underemployed and the unofficial labor force reserve. The effects are most severe in the lower classes.
This is yet another indication that the official unemployment rate is a sham which does not show the severity of the economic situation in the country.