Explaining the Unemployment Rate

[pinqy]

There's a lot of idiocy floating around on all sides of the political spectrum about what the "real" unemployment rate is.

So, facts. First, when judging the usefullness of any measure, you have to consider its purpose. A screwdriver does not make a good hammer, but that doesn't mean it's a bad tool, just that you're using it wrong. The Unemployment Rate is meant to be a measure of how available labor is being underutilized. Note the word "available." If you are not looking for work, then you're not available for work because how could you be hired? How are employers supposed to know you're there? Since this is the main purpose of the measure, the international standard is that a person is unemployed if they are currently (within the last 4 weeks) actively looking for work, and are available to start work. If you are waiting for recall from a temporary layoff, you do not need to have been looking for work. If you are on the Union rolls, that counts as looking for work.
This is the definition used since 1967. There was one change in 1994 requiring that people starting a job still had to have looked in the previous 4 weeks.

Receiving Unemployment Benefits has NEVER been a requirement to be counted as Unemployed.

While this standard serves its purpose, it is useful to look at different components of the picture as well. For all measures, the Universe we're dealing with is the Adult Civilian Non-Institutional Population. In other words everyone 16 years or older (it used to be 14), not in the military (domestic military was included in an alternate measure in the '80's) not in jail/prison or in a mental hospital or any other long-term institution.

Every month, 60,000 households are surveyed with the reference week being the week of the month containing the 12th.

Employed are those who worked at least one hour for pay or more than 15 hours as an unpaid worker in a family business.

Unemployed are those who did not work for at least one hour, were available for work, and had looked for work in the previous 4 weeks.

Everyone else is considered "Not in the Labor Force" because they are not actually participating in the Labor Market.

However, there are some subsets of the Not in Labor Force that are important to look at. The Marginally Attached (a group first defined in 1994) are those who did not work, did not look for work in the past 4 weeks, but want to work, are available to work and have looked in the last year.
A subset of the Marginally Attached are "Discouraged Workers" who did not look specifically because they didn't think they could find a job they could get. The difficulty with these two is that they are very subjective, but they are useful to look at becuase if the economic situation changes, these are the people who can fill in available labor needs.


For the Employed, underemployment is also something that bears watching, though it's nonsensical to say that someone with a job is "Unemployed." As part of the interview, people who work part time are asked if they would prefer to work full time and why they are not. "Part Time for Economic Reasons" means either that the person usually or used to work full time, but had hours cut due to slow or slack work or that the person could not find any full time employment. "Part Time for Non-Economic Reasons" are those who work part time for child-care, commuting, or other reasons not having to do with employment availability.

On the other hand the official definition can also be too broad and special groups bear looking at. So there are 6 published measures of Unemployment:
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U-2 Job losers and persons who completed jobs, as a percent of the civilian labor force
U-3 Total unemployed, as a percent of the civilian labor force (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
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

In the current conditions, I'd suggest that U-1 and more importantly U-2 are worth looking at.