March 7, 2017

What the unemployment rate does – and doesn’t – say about the economy

Every month, the federal Bureau of Labor Statistics releases a flood of data about employment and unemployment in the U.S. And every month, the lion’s share of the attention goes to one figure – the unemployment rate, which was a seasonally adjusted 4.8% in January. (The February report comes out on Friday.)

But the unemployment rate is just one indicator of how the U.S. economy is doing, and it’s not always the best one. Simply being out of work isn’t enough for a person to be counted as unemployed; he or she also has to be available to work and actively looking for work (or on temporary layoff). In any given month, the unemployment rate can rise or fall based not just on how many people find or lose jobs, but on how many join or leave the active labor force.

There are, in fact, five other monthly measures of what the BLS calls “labor underutilization” besides the official unemployment rate, as well as scores of other measurements – labor force participation rates, employment-population ratios, average weekly wages, average hours worked and more. Knowing what those other data points are, where they come from and how they’re calculated is critical in understanding what they do – and don’t – tell us about the nation’s workers.

Take the concept of unemployment. Since U.S. economists first began trying to systematically measure unemployment in the 1870s, one of the main issues has been defining exactly what “being unemployed” means – since many people who don’t have jobs, such as retirees and students, may not actually want paying work. (As the BLS itself noted once upon a time, “Being employed is an observable experience, while being unemployed often lacks that same concreteness.”)

Since 1945, the official definition has been that to be considered unemployed, you must not only not have a job but be available for work (i.e., not too sick to work) and have actively looked for a job in the past four weeks. If you’re neither employed nor, according to the official definition, unemployed, you’re not considered part of the labor force.

The BLS derives its unemployment data from the Census Bureau’s Current Population Survey, which interviews about 60,000 people each month (and not, as is sometimes supposed, by counting how many people drew unemployment benefits). The CPS covers the entire civilian non-institutional population ages 16 and older, including self-employed people; prison inmates, residents of mental facilities and homes for the aged, and active-duty military personnel are excluded. (A separate survey of 146,000 private- and public-sector employers produces the monthly nonfarm-payroll numbers.)

Since 1994, no major changes have been made in how unemployment is measured, though there have been some modest updates to the CPS over time. For example, a 2010 change raised the upper limit on reporting how long someone has been jobless from “99 weeks and over” to “260 weeks and over” in order to better track long-term unemployment.

As many observers have pointed out, the official unemployment definition leaves out some significant groups. The underemployed – part-time workers who would prefer to work full-time – are counted among the employed. And discouraged workers – people who’d like a job but have stopped looking because they don’t believe any work is available – aren’t counted as part of the labor force at all.

But the CPS asks people a lot more than whether they are working or searching for work. Questions include how long jobless people have been out of work, how recently they looked for work, why part-timers aren’t working full time, why people choose not to look for work, and even why people with jobs may not have been working during the survey period (for example, if they were sick, on vacation, temporarily laid off or snowed in).

All that extra data enables the BLS to calculate six different measures of labor underutilization, labeled U-1 through U-6, with broader or narrower parameters than the official unemployment rate (which is known as U-3). The broadest, U-6, includes all “marginally attached” workers (including discouraged workers) and involuntary part-time workers. The seasonally adjusted U-6 rate stood at 9.4% in January; since 1994 it has ranged from 6.8% (in October 2000) to 17.1% (most recently in April 2010). While the U-6 typically runs anywhere from 3 to 7 percentage points higher than the regular unemployment rate, with the gap wider during recessions and narrower in good economic times, it tends to follow the same pattern as the official unemployment rate.

Beyond the unemployment rate, a key metric in the monthly jobs report is the labor force participation rate – the share of the 16-and-over civilian non-institutional population either working or looking for work. The participation rate rose for several decades, peaked in early 2000 at 67.3%, then began falling; in January it was 62.9%, about where it was in the late 1970s. Labor economists generally agree that waves of retiring Baby Boomers explain part (but not all) of the decline, which has been especially steep for men in their prime working years.

There’s also the employment-population ratio, which measures employed people as a percentage of the 16-and-over civilian non-institutional population. Though the ratio has some quirks, it’s less affected by seasonal variations or short-term fluctuations in labor-market behavior than the unemployment rate. According to the January jobs report, the seasonally adjusted employment-population ratio was 59.9%, three-tenths of a percentage point higher than it was a year earlier.

Like the labor force participation rate, the employment-population ratio can be affected by more people retiring or deciding to go back to school. That’s why many labor-market economists focus on the 25-to-54 age group, which strips out most students and retirees. In January, the employment-population ratio for that subgroup was a seasonally adjusted 78.2%, a figure that’s been constant for the past four months. While that’s better than it was during the long hangover from the Great Recession (only 75.2% of 25- to 54-year-olds were employed in January 2011), it’s still below the indicator’s pre-recession high (80.3% in January 2007).

It’s also important to remember that not all employment is created equal. Before the Great Recession, fewer than 20% of all part-time workers said they were working less than 35 hours a week for economic reasons, such as slack demand or inability to find full-time work. During the slump, that share jumped to a third of all part-timers; the “involuntary part-time” share has fallen since, to 22.2% of all part-timers in January, but still is above typical pre-recession levels.

Note: This post has been updated with January 2017 unemployment data. It was originally published in June 2013.

Topics: Business and Labor, Economic and Business News, Economic Policy, National Economy, Work and Employment

  1. Photo of Drew DeSilver

    is a senior writer at Pew Research Center.

12 Comments

  1. William H. Magill4 months ago

    Somebody needs to look at and fix the graph/bar-chart in the beginning of this article — it makes zero sense. All the lines representing different percentages are equal in length.

    1. David Kent4 months ago

      Thanks for your comment – this is not a bar chart, actually. The figures at left serve as a legend for color coding, with each image of a person a right representing 1% of the total (hence the 100 images).

  2. Anonymous4 months ago

    All I can say that the 4.8% unemployment rate is a lie. This would really mean that the 4.8% would be full time employed and it is far from it. People mostly work from 3 to 19 hours a week, having oftentimes 2 or 3 jobs if possible. How can one live like on min. wage and only 19 hours a week,no benefits, no saving, not paying into SS worth mentioning, what retirement. And there are still people out there who think it is an education problem and min. wage is a starter wage. Maybe they are blind when they walk into restaurants and retail stores and see them old ladies working there, yes for min. wage. Retired Army no matter what rank is desperate to apply for a custodian. A slap in their face really.

  3. Anonymous1 year ago

    the problems we had with our economy starting in 2008 meant we grew faster than we should have, and what we are going through now should be expected….we are not meant to recover to a point we were in back in 2007…think of it this way…you get fat and now you want to lose weight so you diet…..while you are on the diet you dont feel like you are eating as much as you did before…its common sense…a lot of our problems were are own doing in a way..we took the credit that was offered to us and spent money buying things causing a false sense of financial security…we used the money from all those equity lines of credit and bought more things causing more false sense of financial security…i could be wrong but i dont think i am…..

    1. Anonymous4 months ago

      You are right that allowing people to borrow money that they had no hope of repaying was dumb. Equally dumb were those folks taking the loans.

  4. Collaborator3 years ago

    I’m so upset about the BLS stats. I just created a new group in NYC for this purpose. It’s time we need to come together as a whole, train each other, represent each other all as whole. This unemployed and underemployment must stop!
    We are struggling to survive.

    goo.gl/VCmfzS

  5. Dayne Clark3 years ago

    Hi Drew,
    Economics is the study of how we satisfy our needs and wants.
    Most of my colleagues do not get out of the office to find out what
    is happening in the real world.
    For example the BLS in the mid 1990’s released a report saying that
    furniture manufacturing was increasing in the U.S.
    A couple of months later there was, I believe, the annual National Association
    of Furniture manufacturers and they started discussing the report that had been
    issued by the BLS and concluded it was wrong because there data showed that,
    they were contracting to have more manufactured abroad.
    It came out that the BLS was using a percentage of reported furniture sales dollars
    to estimate the percentage of foreign manufactured furniture that had been
    been establish 15 or more years earlier.
    Thus, I feel that many of the numbers they put out are misleading because they
    have not gone out and check to see if the procedures they use for estimating are
    still providing relevant numbers.
    Correlation does not always mean there is a cause and effect relationship, just
    because it fits your hypothesis.
    You have to be more diligent in your work and not assume correlation means there
    is a cause and effect relationship.
    Which means you have to get out of the office and see what factors are affecting
    the consumers decision and those can change, they do not stay constant.
    May you have a Great Week!

  6. Dayne Clark3 years ago

    The tiles of the chart and the percentages are “Extremely Misleading.”
    For example the tile refers to “Workforce” but the percentage given is
    for the entire U.S. population which includes babies, disabled individuals,
    retired individuals, prisoners in jail and old people, plus many other categories.
    Thus, the percentages for unemployed are about half of what
    they would be if the % calculation had been based on those who are actually
    considered employable.
    I find the presentation confusing to the general public and misleading.
    It will confuse the general public as to what Economists consider the Real
    Numbers that should be used in evaluating the number of jobs that need
    to be created.
    Some might think the presentation as cute, but misleading information
    like this only leads to mistrust in the real numbers that are used to try to
    manage the economy.

    1. Armin2 years ago

      Your incorrect; the population used is the “civilian noninstitutional population” which consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.

      BTW that’s the BLS definition. Pew even states that the “…look at the employment-to-population ratio, a measurement of employed people as a percentage of the entire adult civilian non-institutional population.”

    2. Anonymous4 months ago

      All population “16 and above.” No babies.

  7. JD3 years ago

    Hi Drew, Do you have an update on this chart, since the mid-terms 2014? I am anxious to see if voter turn-out actually decreased, stayed the same, or increased. 🙂 pewresearch.org/fact-tank/2014/0…

  8. American4 years ago

    Many of the employed Americans are low paid self-employed professionals with college degrees that used to make much more money before the Great Recession. The disparity in income is imply ignored in this data.