Question

Why is the unemployment rate considered to by some to be an incomplete measure of economic hardship and lost output? What alternative measure is provided by the Bureau of Labor Statistics to measure lost economic productivity?

Answer 1

1,Problems With the Unemployment Rate

Because the unemployment rate is measured as a percentage of the labor force, an individual is not technically counted as unemployed if she has gotten frustrated with looking for a job and has given up on trying to find work. These "discouraged workers" would, however, probably take a job if it came along, which implies that the official unemployment rate understates the true rate of unemployment.

This phenomenon also leads to counterintuitive situations where the number of employed people and the number of unemployed people can move in the same rather than opposite directions.

In addition, the official unemployment rate can understate the true unemployment rate because it doesn't account for people who are underemployed- i.e. working part-time when they would like to be working full-time- or who are working at jobs that are below their skill levels or pay grades. Furthermore, the unemployment rate doesn't report how long individuals have been unemployed, even though duration of unemployment is clearly an important measure.

2. Six alternative measures of labor underutilization have long been available on a monthly basis from the Current Population Survey (CPS) for the United States as a whole.

• U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
• U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
• U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
• U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
• U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
• U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.