CNBC sounded a warning, lest any be misled:
The main reason the headline unemployment rate (U3) fell to 9.5% and the broad unemployment rate (U6) fell to 16.5% is that a record number of unemployed have stopped looking for work and have lost eligibility for unemployment payouts. About two million are expected to exhaust their unemployment benefits eligibility by mid-July, many without getting a new job.
CNBC.com Staff Writer Jeff Cox speculates that the number of unemployed who will drop out of the labor force, forgoing an active job search, will increase once jobless benefits run out (and they need no longer prove that they are looking for work to receive a payout). Others believe that stopping the subsidies for unemployment (which have already been extended for a historically long period of time) would help encourage people to look for and accept jobs.
Accepting jobs that may not be as desirable as former jobs may improve the headline (U3) unemployment rate, but not the broad (U6) unemployment rate, since workers may accept part time jobs when they prefer full-time jobs. A widening gap between U3 and U6 indicate that the labor force is still underutilized and nowhere near fully recovered.
Already a record high of over a million unemployed have dropped out of the labor force, skewing unemployment rate figures lower. "Roughly 1.1 million workers have given up hope of finding employment. The staggering level of "discouraged workers" as the government calls them has swelled to historic proportions in 2010, past the million barrier for the first time since the Bureau of Labor Statistics has been tracking the number."
"The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. This month the gap expanded between the official rate and U-6. Mostly that was due to an increase in the number of discouraged workers, considered marginally attached to the labor force. That figure puts a dark cloud on the drop in the national rate. It indicates that many of the people who dropped out of the labor force in June did so because they gave up looking for jobs...
Both the headline and U-6 rates are based on the number of people in the labor force. When the unemployed drop out of the labor force completely the jobless rate declines. That problem has been exacerbated in the current recession by the large number of people unemployed for a long period of time. About 6.8 million people have been out of a job for more than 27 weeks. This month, despite a 190,000 increase in the population, the number of people in the labor force dropped by 652,000."
Record number of long-term unemployed (unemployed for 27 weeks or longer)
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