According to the Bureau of Labor Statistics the seasonally adjusted official unemployment rate for February fell to a four-year national low of 7.7%. While the White House cautiously congratulated itself, Republicans quickly pointed to what is often called the real unemployment rate; it stood at 14.3%.
The BLS looks at six categories of different data, from U-1 to U-6, to analyze employment every month. U-3 includes people who have been unemployed but who have actively looked for work during the past month; this is the official unemployment rate used by the media. U-6 contains data excluded from U-3, including part-time workers and the unemployed who have unsuccessfully looked for a job in the last year; this is the real unemployment rate.
Now there is fresh reason to believe that even the 14.3% rate may be a considerable understatement.
Since the economy began its slow, slow recovery in late 2009, we’ve been averaging about 150,000 jobs created per month. In that same period every month, almost 250,000 people have been applying for disability. That’s right, more go on disability each month than get a job.
Why do disability figures skew the unemployment rate? The people on federal disability do not work. Yet because they are not technically part of the labor force, they are not counted among the unemployed.” They become the invisible unemployed.
What Explains the Rise in Disability Payouts?
The precipitous rise in disability claims comes from the unintended consequences of political maneuvering.
“The End of Welfare as We Know It” was announced in 1996 when President Clinton signed a reform act intended to move people off welfare rolls and into jobs. Clinton “encouraged” the individual states to push for the transition by making them fund a much larger share of their welfare programs. To encourage the individual recipients, the reforms also capped the length of time a person was eligible for welfare.
The incentive worked on the states, but not in the manner intended. Each person on welfare became a continuing cost for a state, but each person who moved onto disability saved the state money, because Social Security disability insurance is fully funded by the federal government.
The “PCG [Public Consulting Group] is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability... The company has an office in eastern Washington state that’s basically a call center, full of head-setted people in cubicles who make calls to potentially disabled Americans, trying to help them discover and document their disabilities.”
A recent contract between PCG and the state of Missouri offered PCG $2,300 per person it shifted from welfare to disability.
Disability is easier to qualify for than welfare and has no time limit. Moreover, those on disability qualify for Medicare and other benefits, as well as receive payments roughly equal to a minimum- wage job. Only 1% of those who go onto disability leave to rejoin the workforce.
Conclusion: What Is the Actual Unemployment Rate?
If neither the official (U-3) nor the real (U-6) unemployment rate can be trusted, then how can we ascertain a more reliable rate? No one knows for sure, but the economic trend-monitoring site Investment Watch concluded that the actual American unemployment rate -- one that includes all unemployed -- is around 30%.