A key indicator of the health of a nation’s labor market, the unemployment rate attracts a lot of attention – especially during recessions and challenging economic times. High unemployment can affect families’ financial stability, erode professional skills, and reduce productivity. For the economy as a whole, it can decrease consumer spending and reduce overall growth.
The official unemployment rate, known as U-3, measures the number of people who are jobless and looking for work as a percentage of the labor force. But it’s not the only measure of labor underutilization, and other disaggregated metrics can provide a fuller picture of the state of the labor market.
For example, underemployment rates (U-6), which include the unemployed plus discouraged workers and marginally attached workers, give a more comprehensive measure of slack in the labor market. These numbers may also highlight structural influences on labor force participation that are independent of the business cycle. For example, if more jobs are available in sectors with less stable hours, or if people have to settle for part-time work when they want a full-time job, underemployment will likely increase.
Keeping an eye on a range of labor market data can help analysts and policymakers understand these trends and craft better policies that will promote employment. LISEP developed the True Rate of Unemployment to address this need, providing analysts and policymakers with a more complete picture of Americans’ economic well-being. We calculate it by combining the U-3, U-4 and U-5 measures and adding in workers who have to settle for part-time work below their skill level because of economic factors.
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