How the Real Unemployment Rate Is Calculated (And Why It Matters)

it’s hard to say whether we are officially in a recession, but the unemployment rate has traditionally been one of the most reliable indicators of how the economy is faring. It does not mean. actually, Bureau of Labor Statistics (BLS) Calculate the unemployment rate of six different wayHere’s what you need to know about the real unemployment rate and how it reads the state of the labor force more accurately.

what is another way unemployment rate is calculated?

First, here are some definitions. Defined by BLS “Unemployed” means “unemployed, actively looking for work, and available for work.”From there the country official unemployment rate teeth Unemployed as a percentage of the labor force (employed and unemployed combined). In other words, the unemployment rate reported in the media is the percentage of people without jobs. can I have.

as we pointed out, BLS computes six different rates to measure the unemployment rate. The most widely used (and quoted) U-3 rate.However, the most comprehensive statistic reported is called U-6, aka Real unemployment rate.

Why the real unemployment rate is more comprehensive

The standard used “official” unemployment rate (U-3) counts only those who have looked for work in the last four weeks. The real unemployment rate (U-6) uses a broader definition of unemployment and may be a more accurate depiction of the state of the labor force. Importantly, the U-6 calculation includes underemployed, marginalized, and disengaged workers.

As Politico explainedmuch of the U.S. workforce is “Functional unemployed”; tthe hat is actively looking for work but unable to find full-time work, part-time workers earning below the poverty line, or otherwise fit Tonother, broader understanding unemployedNot included in official U-3 rates.

balance uses the early pandemic figures and puts them into context as follows: The official unemployment rate peaked at 14.8% in April 2020. real The unemployment rate, taking into account the aforementioned “functional unemployment,” was 22.9%. A higher number gives a more accurate reading of how the workforce has changed. Affected at the start of the pandemic.

July 2022, The official unemployment rate was 3.5 %, the real unemployment rate was 6.7 percent (per BLS). For those interested, the BLS publishes the unemployment rate each year. years since 1929.

How to calculate the real unemployment rate

To better understand how the BLS calculates the real unemployment rate, balance Simplify into the following three steps:

1. Add those who work part-time for economic reasons to those who are officially unemployed, plus the number of workers who are slightly employed. This gives us a wider range of underemployed workers.
2. Add the number actively participating in the workforce to the number of workers connected to the limit.
3. Divide the total number of underpaid/unemployed (from step 1) by the total workforce (from step 2).

BLS will calculate this actual rate, but if you want to double check the calculation, their data retrieval tools.

Conclusion

More than just unemployment Indicators used for evaluation The health of the economy, but no doubt One of the most powerful indicators available to the general publicWhile there is one ‘official’ unemployment rate reported in the media, it is important to consider a broader definition of exactly who is considered unemployed or underemployed.You can get a better idea by looking at another calculation, especially the real unemployment rate of how the country’s workforce is actually doing.