What Minnesota unemployment numbers really tell us

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Minnesota has a 5.9% unemployment rate. But what does that mean? Unemployment is much more complex than that number indicates because it ignores a significant number of people who are affected by the poor labor market.

That basic number is known as U-3 unemployment and includes everyone who does not have a job but is actively looking. When Minnesotans become so discouraged with the job market that they stop their job search, they are omitted. They are also not counted if they are underemployed – working part-time but want full-time work or have jobs for which they are overqualified.

U-6 unemployment is a broader definition of unemployment that also includes discouraged workers and the underemployed. In Minnesota, the latest U-6 unemployment is 12.1% – double the U-3 unemployment.

There are two reasons why this is a problem for Minnesota. Most important, there are approximately 150,000 underemployed or discouraged job-seekers in Minnesota above and beyond the 175,000 who are unemployed making the job market worse than most people think. Second, as the economy improves discouraged and underemployed workers will start looking again. Unless they immediately find jobs, they will be reported as part of the U-3 unemployment rate leading to anxiety that unemployment is rising again, when nobody really lost a job.

The unemployment and especially the underemployment picture is even bleaker for young adults. Unemployment among young adults is much higher than for the general population. In the latest available figures, unemployment among 20-24 year-olds is 9.2% (not accounting for underemployment). A recent study found that over half of recent college graduates were either unemployed or underemployed in 2011.

Source: U.S. Bureau of Labor Statistics

Graduating into a weak job market is not only temporarily painful – it can be detrimental for decades to come. According a Yale School of Management study, higher unemployment at graduation impacts wages into a worker’s future.

Dr. Fatih Guvenen, Associate Professor of Economics at the University of Minnesota, studies this problem. According to his research, young adults typically switch occupations several times in their twenties in order to find the right career. “When they eventually find an occupation that they like and are good at, they are more likely to invest in human capital – training and skills. In a poor job market, they do not have the flexibility to switch because jobs are harder to come by.”

The state of the job market is much more nuanced than the 5.9% unemployment rate reported for Minnesota. The longer that Minnesota’s labor force is underutilized, the worse the long-term impact is. In my next article, I will discuss some steps Minnesota can take to address unemployment.

* This is a conservative estimate. With U-6 Unemployment at 12.1% and U-3 Unemployment about half that rate, there are at least the same amount of underemployed and discouraged workers as U-3 unemployed workers75,000. The number of Minnesotans who are U-6 unemployed is likely even larger than 175,000, since the U-6 Unemployment rate is a percentage of a labor force that has a broader definition and is larger than the labor force used to calculate the U-3 unemployment rate.