The percentage of the U.S. population that had full-time work declined in December, according to a report released by Gallup on Thursday. Gallup calculated a payroll-to-population rate of 42.9 percent for the month, down from 43.7 in November and 44.4 percent in December 2012. This is also down from a high of 45.7 in October 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. 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.
On Friday, the BLS will release the monthly Employment Situation report, which is the benchmark for the headline unemployment rate. Headline, or U-3, unemployment is a measure of how many members of the labor force — defined by the BLS as the set of Americans who are both eligible and willing to work — are actively seeking employment. In November, this was 10.9 million people, or 7 percent of the American labor force.
The labor force participation rate edged up from 62.8 percent in October to 63 percent in November. This is substantially lower than its pre-crisis level of about 66 percent. This reduction in the labor force participation rate has helped reduce the headline unemployment rate without actually raising the overall level of employment or improving the health of the labor market.
Since the headline unemployment rate offers an incomplete picture of the labor market, observers often turn to alternative metrics, such as the payroll-to-population rate. The BLS also maintains an employment-to-population ratio, which increased by 0.3 percentage points in November to 58.6 percent.
Another popular alternative is the U-6 unemployment rate, which counts not just those job seekers included in the U-3 (headline) rate, but also those who are marginally attached to the workforce (underemployed) and people working part time for economic reasons. In November, this rate was 13.2 percent, 0.6 percentage points below October and well below post-crisis highs of 17.1 percent recorded in 2009 and 2010.
Gallup also tacks underemployment. Gallup defines its underemployment rate as “the percentage of adults in the workforce who are unemployed or working part time but looking for full-time work.” In December, this rate declined 0.1 percentage point to 17.2 percent.
Economists are expecting Friday’s BLS report to show no change in the headline unemployment rate and a payroll increase of 200,000. The ADP National Employment Report showed 238,000 payrolls added in December, which compares against a six-month average gain of 195,000.