BusinessWeek: Unemployment’s Worse Than You Think

BusinessWeek runs a nice story looking at the unreliability of unemployment statistics and how they’re underestimating actual unemployment—something I criticized the Journal for ignoring yesterday.

Because the methods to gather unemployment haven’t kept pace with changes in the workforce, self-employed or freelance workers aren’t counted as laid off even if they lose most of their income. Over the past decade or so, many companies staffed up using more such outside workers to cut their costs for health-care and retirement benefits and to give them more flexibility to expand or contract with business. That flexibility, of course, means that assignments or pay are now shrinking for many of those people.

For example:

Bender is a 47-year-old Manhattan resident who has worked on and off developing investment tools for Charles Schwab (SCHW) over the past eight years. That job provided about 90% of Bender’s income, which she says kept her “very well compensated.” But starting last summer, Charles Schwab has pulled the plug on the three projects she was planning to complete, and her income from the company has dried up. Now, Bender is looking for other work to meet her monthly mortgage payments of about $3,400 for an apartment she bought two years ago.

As a self-employed contractor, Bender is not only ineligible for unemployment benefits; she doesn’t even get counted in the government’s unemployment statistics.

BusinessWeek reports that freelancers make up 10 percent of all workers. But, of course, it’s even worse than that:

It isn’t just freelancers who fall beneath the radar of mainstream unemployment figures. Those referred to as “involuntary” part-time workers are also missing from the headlines. This category includes those who would like to work full time but are working fewer hours because their work has been cut back or because they have been unable to find full-time jobs. While these workers haven’t been laid off per se, they are losing a big part of their pay. In February, the number of people classified as working part time for economic reasons rose by 787,000, reaching 8.6 million. The number of such workers has risen by 3.7 million in the past year, almost doubling.

Even IT workers are getting hit (emphasis is mine):

The IT sector—in which many employers have shifted to hiring freelancers in recent years—isn’t much easier. Tom Williams of Westchester, N.Y., has been an independent contractor for 15 years, managing technology for the asset management divisions of large banks. He says his hourly rate has shrunk about 20% since the financial crisis hit last year, to $90 per hour. One client, a global bank, insisted on cutting his hourly rate by 10% two weeks after its contract with him had begun. Williams managed to negotiate the reduction down to 5%.

Oh, the sanctity of contracts! I’m guessing none of the windbags defending the AIG bonuses are going to step up for Mr. Williams. I can hear it now: “Well, they had to to preserve their capital ratios.”

One thing that’s missing here is a discussion of already extant alternative measures of unemployment, like the U-6 (See this CJR Campaign Desk piece on how the government undercounts unemployment), which includes people who have given up looking for work and part-timers who are looking for full-time work.

The 21st century economy is much different and flexible than it was in the severe recession of the early 1980’s when unemployment neared 11 percent.

That U6 number? It stands at 14.8 percent—well above the official 8.1 percent rate.

Good for BusinessWeek for pointing out that the misery of American workers isn’t being captured by the government statistics the media rely on.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.