Fisher Investments Editorial Staff
US Economy

Unemployment, Underemployment and Zombies

By, 10/05/2009

Story Highlights:

  • On Friday, the Bureau of Labor Statistics announced September unemployment rose to 9.8%, up from August's 9.7%. But 17% underemployment is the scarier stat increasingly quoted in the media. 
  • By definition, underemployment is higher than unemployment, and because it closely tracks unemployment, it's hard to see what insight it adds.
  • Employment numbers have always lagged market and economic recoveries—investors shouldn't wait for improving numbers before getting back into stocks.


Halloween is drawing closer, but ghouls, vampires, and zombies can't match the fright factor of Friday's unemployment news. September's unemployment rose to 9.8% from August's 9.7%. Not great, but still below the peak in the 1981 recession. But tacking on the "underemployed," unemployment could be as high as 17%.

But just what does "underemployed" mean? It's a count of those working part time who want full-time jobs, and those who've simply given up their job search.  But it's a bit of an odd metric, one you don't hear much about during rosier times. What does underemployment tell us about the economy that unemployment doesn't? Not much. After all, underemployment is always higher than unemployment—it's by definition a broader metric. Heck, widen underemployment to include full-time workers dissatisfied with their jobs and the number could be much higher.

Today's 17% isn't even that high. Underemployment's been higher in past recessions—and at its most extreme (had it existed back then), would have hit 44% during the Great Depression. Further, though naturally higher, underemployment has historically tracked unemployment, plus some percentage point spread, in good times and bad—so why not just track unemployment? (A cynical person might suspect because 17% packs a bigger wallop as a headline.)

But what does the spread between unemployment and underemployment tell us? If wider, more folks stopped looking for jobs or were demoted to part-time work. No one wants that, but working part-time is better than working no time—that companies can afford to maintain part-time workers instead of firing them outright could just as well be interpreted as an improvement. As for those giving up, disillusionment is bound to rise during an economic downturn (always has)—but that doesn't say anything about the economy going forward. The gloomiest will likely change their tune when economic conditions do improve—as they always do—which is why sentiment tends to lag reality during economic recovery.

For investors, waiting on improvements in unemployment (or underemployment) is faulty. Historically, both peak after economic recovery is underway and even longer after a stock market recovery's begun. Unemployment (and underemployment) will likely stay elevated or even continue rising for a time, but history tells us that doesn't have to hold back stocks or economic recovery. 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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