A key indicator of a nation’s economic health, unemployment plays a critical role in setting monetary policy and making strategic economic decisions. The unemployment rate is the number of people without jobs divided by the total labor force. But the headline numbers from the Bureau of Labor Statistics paint an incomplete picture, as they leave out many people who want full-time work and are willing to search for it, as well as those who are working but earn a living wage for their efforts (such as stay-at-home parents or family members who perform unpaid labor on the homefront). LISEP developed the True Rate of Unemployment to give analysts and decision makers a more accurate snapshot of Americans’ financial wellbeing.
Unemployment affects every part of society, from individuals and families to the economy as a whole. It reduces consumer spending, which can stall economic growth, and it increases dependency on social welfare programs and loss of tax revenue. High unemployment rates can also damage local communities, fostering feelings of hopelessness and eroding social cohesion.
In the aftermath of the COVID-19 pandemic, a range of different measures have been devised to understand the state of the labor market more accurately. But calculating unemployment is not an exact science, and it’s easy for even the most seasoned economist to misinterpret the data.
Some economists believe that the official unemployment rate is too narrowly defined, while others argue that it’s too restrictive. To broaden its scope, the BLS has created a range of alternative measures, known as U-1 through U-7, which are regularly published alongside the official unemployment rate in the Employment Situation report.