Labor Market Diagnosis: The Underemployed States of America
The total number of employed adults in the United States was unchanged in November, according to a December 5 report from Gallup. Gallup calculated a payroll-to-population rate of 43.7 percent for the month, flat compared with October and November 2012. This is down from a high of 45.7 in October of 2012 and above lows of 41.7 registered at the beginning of 2011.
The payroll-to-population ratio, which is a measure of the percentage of the total adult population that is employed full-time, is an alternative way to measure unemployment. Gallup has been tracking this metric since at least 2010, and some economists have argued that the Federal Reserve should target a measure of full-time employment such as the payroll-to-population ratio instead of headline unemployment because of a number of problems inherent in the headline unemployment measure offered by the U.S. Bureau of Labor Statistics.
Perhaps the biggest problem with the headline unemployment rate is that it can be misleading, and it often paints a rosier picture of labor market conditions than is called for. The headline rate doesn’t include marginally attached or discouraged workers — those who are underemployed and those who have given up on searching for a job, respectively. What’s more, the headline unemployment rate is sensitive to changes in the labor force participation rate, or the share of all adults who are willing and able to work, be they already employed or looking.