Ever notice how people like to lump things into categories? Yes or no. Hot or cold. Pass or fail. Democrat or Republican.

Discrete groupings make things so much simpler. We’re hardwired to think this way. Limiting complexity to a manageable level has been crucial to our progress as a species.

The labor market is no exception. We tend to think of workers as either employed or unemployed. That’s it. But as with temperature or politics, imposing broad characterizations throws away important information.

For instance, unemployment isn’t an all-or-nothing proposition. And thinking of it that way can give us false directions for policy. Here’s a (fictional) example that illustrates just how misleading the unemployment rate, taken alone, can be.



Meet Margie and Terry, the proud parents of two children, Jack, 10, and Jill, 7. They live in a not-quite-large enough two-bedroom apartment in the middle-class Bay Ridge neighborhood of Brooklyn. They’re a loving and happy family, but recently they’ve come upon some rough financial luck.

Terry, who worked in residential construction for most of his career, has had trouble finding steady work ever since the housing bubble collapsed in 2007. In the interim, he’s taken a job in the lumber department at Home Depot. But with a large influx of similarly situated men, he’s only been able to get 25 hours a week. The odd handyman project has helped get bills paid on time, but just barely.

Margie has had a tougher time. After 12 years as an administrative receptionist at a midsize law firm, she was laid off in 2010 as the partners tried to squeeze profits from their shrinking client base. Excepting a few holiday-related stints in retail, she’s been mostly unemployed, even as she diligently sent out resumes and attended career fairs.



Then, late last year, Margie’s mother, who lives alone in Flatbush, slipped on some ice and broke her hip. The recovery has been slow, and it’s questionable whether she’ll regain independence. In the meantime, most of the work has fallen to Margie, who visits five times a week to cook, clean and lift her mom’s spirits. Between that and the kids’ crazy schedules, she hasn’t had time to look for a job in a little over a year, though she plans to.

By any rational standard, Margie and Terry are facing serious employment struggles. But in the official unemployment statistics, they’re nowhere to be seen.

The reality is that unemployment occurs somewhere in the middle of a spectrum of underemployment. At one end are workers who lack jobs and have given up looking for them. Economists refer to this group as “marginally attached” workers, and they aren’t counted in the official unemployment statistics. (That’s Margie.) At the opposite end are involuntary part-time workers — those who have part-time jobs, but want to work full-time. (That’s Terry.) The traditional unemployed — the ones the unemployment rate captures — have it somewhat better than the first group, but worse than the latter. All three groups are rightly characterized as underemployed.



In normal times, ignoring marginally attached workers and involuntary part-timers doesn’t distort policy too much, since the traditional unemployed tend to predominate. But since the Great Recession, it hasn’t been normal times.

Take a look at the figure below, which comes from my new report, "Uncovering the Labor Market Recovery," published last week by The Century Foundation. It plots the underemployment rate (officially, it’s know as the “U-6 rate”) from 2000 to 2014.



U.S. Bureau of Labor Statistics

As you can see, the traditional unemployed usually make up the lion’s share of the underemployed. During the recession, the shares of marginally attached workers, and in particular involuntary part-timers, spiked. (Discouraged workers — those who give economic reasons for not looking for work — are a subset of the marginally attached.)

At its height, underemployment hit 17.2 percent, which means that more than one in six Americans had less work than they wanted. Although underemployment has steadily declined since, the pace has been slow. As of October, it’s 11.5 percent — a ignominious milestone that marks the first time since 2008 that underemployment dropped below its previous record high, set in 1994 (which is when the Bureau of Labor Statistics began keeping track of this measure).

As it stands today, 17.7 million Americans are underemployed — double the number of officially unemployed. While the labor market has recovered to the point where unemployment is nearing pre-recession territory, marginal attachment remains elevated by 61 percent, and involuntary part-timing by 64 percent.



If we look only at the unemployment rate and fail to account for those who are “very” unemployed or “nearly” unemployed, we get a misleading impression of the labor market’s strength — literally only half the story. Policy choices based on those misimpressions, such as a premature tightening of monetary policy or a failure to adequately fund work supports, can undermine the fragile recovery and imperil the welfare of workers who are still suffering the recession’s effects.

In short, the labor market challenges we face require nuanced policy, not oversimplification. The right question isn’t whether people who are actively looking for jobs can find them, but how to ensure all Americans who are willing and able to work can engage in fulfilling, productive activities.