Unemployment Rate
The unemployment rate is the main indicator of the labor market, which is defined as the proportion of the unemployed people to the total number of economically active population of a specified age group. This indicator can be revealed only after the change in the general economic conditions. We can predict that the rate will likely rise if there is a shortage of jobs and the economic activity is low. The unemployment rate decreases if there are signs of a healthy, growing economy with a wide variety of job opportunities.
Unemployment Rate explained
The U.S. Bureau of Labor Statistics (BLS) submits a monthly report on the unemployment data.
The most widely reported unemployment rate is officially known as a U-3 rate, which is commonly used in comprehensive reports on the labor market. In this report, an unemployed person is defined as an individual who doesn't have a job (profitable occupation), who has been searching for a job for the last 4 weeks and is ready to take a job. By contrast, the employed comprise all persons who work less than a full-time workweek, who work a full-time workweek and who are engaged only for a specific period of time. Besides, working without pay on one's own family-operated farm or business counts as employment.
By removing the seasonal component, the BLS calculates the unemployment rate. However, it publishes unadjusted data, as well.
Difference between U-3 and U-6
Although you can often meet the U-3 unemployment rate in the reports, it is a more narrowly targeted measure. The U-6 unemployment rate is an alternative way to calculate the unemployment rate in the U.S. It is also referred to as the real unemployment rate.
Unlike the main indicator of unemployment, the U-6 rate includes workers that are discouraged and are not seeking employment and people employed part-time due to unfavorable economic conditions.
U-3 is calculated by taking the number of unemployed people divided by the total economically active population (comprises both employed and unemployed persons).
Individuals who have the desire to work but cannot perform job function or who stopped looking for work after things hadn’t progressed in the job search, are not classified as unemployed in this case. They are neither employed nor unemployed, so they don’t match the requirements for being a part of the labor force.
Because of the facts mentioned above, a lot of economists speak out against the U-3 rate.
Different measures of unemployment
As there were many doubts that the real unemployment rate didn’t reflect the situation on the job market correctly, the BLS came up with other state experimental measures that are intended to measure the underutilization of the labor supply. The other rates are presented below.
U-1. Individuals who have been searching for a job in the past 15 weeks and more.
U-2. Individuals who completed temporary positions or were made unemployed.
U-4. Unemployed residents and inactive jobseekers. Inactive jobseekers lost hope in finding a job and therefore dropped out of the workforce. This group consists of people who think that they are not qualified or educated enough, that there are no jobs available in a prior occupational field or that they don’t meet the age requirements. It also includes jobless people who are treated unfairly because of their gender, sexual orientation, race and other factors.
U-5. Unemployed residents and individuals who want and are available for work. It encompasses inactive jobseekers and those who has given up seeking employment after job hunting for a year.
U-6. All the categories mentioned in the U5 rate and individuals who work fewer hours per workweek in the current economic conditions.
Methods and sources of unemployment data
The Bureau of Labor Statistics (BLS) is a division of the U.S. Department of Labor, the main federal government agency that deals with economics and labor statistics. Data collected on surveys of more than 100 thousand respondents reveal monthly unemployment figures.
Data are presented by gender, ethnicity and other factors. Within each rotation group, 75% of the households don't change in the sample compared to the previous month and 50% of them stay the same compared to the previous year.
Persons 16 years of age and older are allowed to take part in the survey (excluding military personnel). Besides, there are restrictions imposed on the people sentenced to prison and those who need residential psychiatric care for a mental illness, etc.
