The unemployment rate is a key economic indicator that gets a lot of attention, especially during challenging economic times. Unemployment negatively impacts the disposable income of families, erodes purchasing power, weakens employee morale and reduces an economy’s output. It also contributes to depression, insomnia, low self-esteem, worry, fear of losing a job, feelings of helplessness, malnutrition and poor cardiovascular health.
Government unemployment statistics are based on a monthly survey of households conducted by the Bureau of Labor Statistics (BLS) using a representative sample of households. Unemployment is defined as the percentage of people without jobs who are either currently employed, seeking work or have given up looking for employment, and includes those who have dropped out of the workforce. The unemployment rate excludes students, homemakers, those who are retired and those who have left the workforce to take care of family members.
However, the official government unemployment rates understate the broader problem of labor market underutilization. The BLS now tracks a range of measures that better describe conditions in the labor market, including underemployment, which refers to people who want more hours but cannot get them. The official BLS data does not include workers who have settled for jobs below their skill levels, such as the mechanical engineer working as a cab driver, and this form of underemployment is often overlooked by analysts. This understatement is a major reason that many economists advocate a more comprehensive measure of the unemployment rate.
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