Labor Underutilization Remains Relatively Low in Oregon
August 19, 2024Most Oregon workers who want a job are already employed. In recent years the “Alternative Measures of Labor Underutilization” published by the U.S. Bureau of Labor Statistics have grown in popularity as statistics for identifying slack in the labor market. All six of these measures (including the official unemployment rate) have been running at a low level for almost three years following the recovery from the pandemic.
The labor force consists of two parts: employed workers and the unemployed. The employed part of the labor force, which totaled 2.1 million Oregonians in June 2024, includes anyone 16 and older who lives in the state, is not active military or in an institution, and either works for an employer, is self-employed, or works on a farm.
The unemployed part of the labor force, which amounted to 89,600 in June 2024, includes individuals who are not working, but are able and available to work, and actively seeking work. People 16 and older who are neither employed nor unemployed are not considered part of the labor force. Around 1.25 million Oregonians fell into this category in June.
Oregon’s unemployment rate – or the unemployed share of the labor force – was 4.1% in June 2024. That’s an increase from the record low of 3.4%, which Oregon reached in late 2019, and again in the spring of 2023. Yet, the unemployment rate remains low by historical standards. Oregon’s unemployment rate has only been at or below 4.5% a few times going back to at least 1976. Those times included a couple of months in the mid-1990s, the 3.5 years prior to the global pandemic closures, and for nearly three years now, from August 2021 through June 2024.
While the unemployment rate serves as an important gauge of the labor market, it does not capture all of the economic situations of all Oregonians whose work capacity may not be fully utilized. To understand more fully, we can look at other measures of labor underutilization.
The official definition of unemployment used by Bureau of Labor Statistics (BLS) is all persons within the civilian noninstitutional population (CNP) who do not have a job, but are currently available for work and are actively searching for work. The CNP consists of all persons age 16 years and over, excluding those on active duty in the U.S. Armed Forces and the institutional population (e.g., prison inmates or those in homes for the aged). Unemployment is sometimes thought to include only those individuals who both qualify for and are receiving unemployment insurance benefits.
However, many outside this group are considered to be unemployed based on the official definition used by BLS. Examples include those who have exhausted unemployment benefits, new labor market entrants – including recent high school and college graduates – and those who are not covered by unemployment insurance, such as the formerly self-employed. These groups are considered unemployed as long as they are actively seeking work.
The official definition of unemployment also excludes certain groups who are sometimes thought of as being unemployed or “underemployed.” Those who would like to work and have actively searched for work sometime in the last 12 months – so-called marginally attached – and discouraged workers who’ve stopped looking for a job, are not counted in the official definition because they are not currently seeking work. People working part time who would prefer full-time work are also not counted as unemployed because they are working – albeit fewer hours than they would like. Finally, those who are not employed (i.e., did work for pay or profit) and do not fit the above definition of unemployed are classified as “not in the labor force.”
The “Alternative Measures of Labor Underutilization” published by the BLS, commonly identified by a “U” in front of a number from 1 to 6, provide both more narrowly (U-1 and U-2) and more broadly (U-4, U-5, and U-6) defined estimates of labor underutilization than the official unemployment rate (identified as U-3). The various measures range from very narrow to very broad definitions of “underutilization,” relative to the official definition of unemployment.
The narrowest measure, U-1, tracks the number of persons unemployed 15 weeks or longer as a percent of the civilian labor force. This measured reached an all-time high of 6.7% on the heels of the Great Recession. It had reached a record low of 1.1% before the Pandemic Recession occurred in 2020. The U-1 measure then rose to 3.9% in early 2021, following the Pandemic Recession. The percentage of the labor force staying unemployed longer than 15 weeks returned to a record low (1.1%) for the majority of 2023, and drifted back up slightly to 1.5% by June 2024.
The second measure, U-2, considers the number of people who lost their jobs or completed temporary jobs, as a percentage of the civilian labor force. The U-2 reached a record high of 10.9% in April 2020, the same month of record job losses in Oregon amid the Pandemic Recession. The U-2 measure has recovered since then, and remained in a tight range between 1.5% (the record low) and 1.6% between July 2023 and June 2024.
The broader measures begin by adding discouraged workers to the unemployed. In the U-4 measure, discouraged workers are defined as those who want a job, are available for work, and have searched for work in the prior year; however, they are not currently looking for a job for reasons related to the job market. If these workers are added, the measure results in only a modest increase relative to the official rate (4.1%) to 4.3%. This measure also reached a record high in April 2020 of 13.9%.
Measure U-5 includes not only the unemployed and discouraged workers but all “marginally attached workers.” Marginally attached workers are defined as persons who are neither working nor currently looking for work but indicate that they want and are available for a job and have looked for a job sometime in the past year. This group includes those who are not currently looking for work for reasons such as lack of child care or transportation. While not quite back to the record low seen prior to the pandemic (4.2%), this measure declined to 4.4% in early 2023, and was 5.3% in June 2024.
Finally, the broadest measure of labor underutilization, U-6, includes all unemployed and marginally attached persons, but also those employed part time for economic reasons. This latter group provides an objective measure of a portion of the underemployed, or “involuntary part-time workers.” The BLS defines “part-time workers” as those who worked less than 35 hours during the reference week of the Current Population Survey. To be classified as employed part-time for economic reasons, an individual must also be working part time because of weak or slack business conditions, or an inability to find full-time work, and must want and be available for full-time work. Involuntary part-time employment does not capture all underemployed people, such as those whose education may qualify them for a more highly skilled position. However, underemployment by educational attainment can be both subjective and more difficult to quantify.
Using this broadest U-6 measure of labor underutilization, Oregon had 8.3% of the civilian labor force plus the marginally attached that was either unemployed, marginally attached to the labor force, or underemployed in June 2024. The U-6 reached its all-time high at 21.5% in April 2020, and hit a record low at 7.1% in 2022, so the June 2024 rate was relatively low by historical standards.
All measures tend to respond in a similar fashion to the business cycle. Regardless of which measure is deemed appropriate, rates of labor underutilization have generally moved up and down together. While the rates for measure U-6 are high relative to the official definition of the unemployment rate (U-3), both U-3 and U-6 show very similar economic trends in Oregon’s labor market over time. All measures, except for the U-1, spiked to record highs in April 2020 and remain at relatively low readings as of June 2024.