We’ve been hearing about unemployment on the news a lot lately, especially leading up to the Fed’s meeting back in August. The Fed expressed concern about the unemployment rate, stating that was part of the data they took into consideration when deciding to lower interest rates.
The official unemployment rate we hear about on the news is called U-3 measure. While this is the data broadcast most often, it unfortunately does not give a complete picture of the unemployment situation because it only accounts for unemployed people actively searching for jobs within a 4-week window.
The unemployment rate in the US fell from 4.3% to 4.2%, representing 7.1 million people looking for work, which means, in theory, fewer people were unemployed. However, this does not include Discouraged Workers. These are adults who have looked for jobs at some point in the last 12 months but are not within the four-week period. Often, they have given up looking for a job (possibly temporarily). Ignoring these people makes it seem like there are fewer unemployed people.
Another issue with the U-3 unemployment measure is it does not take into consideration the quality of jobs that workers are accepting, nor does it distinguish if they are working part-time or temporary jobs.
The Real Unemployment Rate (U-6 measure) uses the data from the U-3 measure as well as four other measures of unemployment accounting for people outside the four-week window. Using this data will give a much better understanding of the actual unemployment situation in our country.
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