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Measuring Underemployment in Illinois: Alternative Measures of Labor Underutilization
(October 2017)
In 2017, the Illinois unemployment rate dropped to levels not seen since before the Great Recession of 2007-2009. However, despite this seemingly good news, some think that the unemployment rate does not fully capture the labor force status of many Illinoisans, especially those who have stopped looking for work. In addition to the official unemployment rate, there are also alternative measures developed by the U.S. Bureau of Labor Statistics (BLS) for the U.S. and states which attempt to measure underemployment or labor underutilization.
Image source: /content/dam/soi/en/web/ides/labor_market_information/local_area_unemploymentstatisticslaus/u-rates.png
The six alternative measures include:
U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
U-3, total unemployed, as a percent of the civilian labor force (the official unemployment rate);
U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
U-6, total unemployed, plus all marginally attached workers, plus total employed part-time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
The chart above shows 12-month moving average U-3 rates (the official unemployment rate) and U-6 rates (the most inclusive measure of under-employment) for Illinois and the U.S. Throughout the past decade, the average Illinois U-3 and U-6 rates have tracked closely, moving in the same direction and reflecting contractions and expansions in the economy. The average Illinois U-6 rate peaked at 18.1 percent in July, August 2010 and fell to its lowest level, 9.6 percent, in August 2017. By comparison, the average Illinois U-3 rate also peaked in 2010 (March, April, July, August) and dropped to its lowest level, 5.2, in May-August 2017. The differences between the average Illinois U-3 and U-6 rates ranged from 4.4 points in August 2017 to 7.5 points in July, August 2011. Nationally, the average U-6 rate peaked at 16.8 percent in April-November 2010 and was as low as 8.2 percent from January-October 2007. The gap between the U.S. U-3 and U-6 rates ranged from 3.6 points in 2007 to 7.1 points in 2011.
Also, both the average national U-3 and U-6 rates have been consistently lower than the average Illinois U-3 and U-6 rates for nearly all the past decade. The Illinois-U.S. U-3 rate differences have ranged from -0.1 point in mid-2007 to more than -1.5 points in late 2013 and early 2014. The Illinois-U.S. U-6 rate differences have ranged from -0.1 point in mid-2007 to more than -2.0 points in late 2013 and early 2014.
A report with 12-month average U-3, U-6 rates for Illinois and the U.S. can be found here.
The source for the U-3 and U-6 rates is the national household survey known as the Current Population Survey or CPS. We used 12-month averages to reduce the impact of the relatively high sampling error from the small Illinois CPS household sample and seasonal patterns. U-6 rates are not available for geographic areas below the state due to insufficient CPS household sample and data reliability concerns.
Monthly national U-1 through U-6 rates are available from the U.S. BLS at https://www.bls.gov/webapps/legacy/cpsatab15.htm. The BLS also produces four-quarter average alternative measures of labor utilization for the U.S. and all states every three months. These alternative measures are available at https://www.bls.gov/lau/stalt.htm.