How the Unemployment Rate Can Overstate the True Level of UnemploymentIf
you are searching for work, it’s normal to take at least a few weeks to find a suitable
job. Yet a worker who is quite confident of finding a job, but has not yet accepted a po-
sition, is counted as unemployed. As a consequence, the unemployment rate never
falls to zero, even in boom times when jobs are plentiful. Even in the buoyant labor
market of 2000, when it was easy to find work, the unemployment rate was still 4%.
Later, we’ll discuss in greater depth the reasons that measured unemployment persists
even when jobs are abundant.How the Unemployment Rate Can Understate the True Level of Unemployment
Frequently, people who would like to work but aren’t working still don’t get counted
as unemployed. In particular, an individual who has given up looking for a job for
the time being because there are no jobs available isn’t counted as unemployed be-
cause he or she has not been searching for a job during the previous four weeks. Indi-
viduals who want to work but aren’t currently searching because they see little
prospect of finding a job given the state of the job market are known as discouraged
workers.Because it does not count discouraged workers, the measured unemploy-
ment rate may understate the percentage of people who want to work but are unable
to find jobs.
Discouraged workers are part of a larger group known as marginally attached
workers.These are people who say they would like to have a job and have looked for
work in the recent past but are not currently looking for work. They are
also not included when calculating the unemployment rate.
Finally, another category of workers who are frustrated in their
ability to find work but aren’t counted as unemployed are the un-
deremployed:workers who would like to find full -time jobs but
are currently working part time “for economic reasons”—
that is, they can’t find a full -time job. Again, they aren’t
counted in the unemployment rate.
The Bureau of Labor Statistics is the federal agency
that calculates the official unemployment rate. It also
calculates broader “measures of labor underutiliza-
tion” that include the three categories of frustrated
workers. Figure 12.2 shows what happens to the meas-
ured unemployment rate once marginally attached
workers (including discouraged workers) and the un-
deremployed are counted. The broadest measure of un-
employment and under employment, known as U6,is the
sum of these three measures plus the unemployed; it is
substantially higher than the rate usually quoted by the
news media. But U6 and the unemployment rate move very
much in parallel, so changes in the unemployment rate remain a
good guide to what’s happening in the overall labor market.
Finally, it’s important to realize that the unemployment rate varies greatly among
demographic groups. Other things equal, jobs are generally easier to find for more ex-
perienced workers and for workers during their “prime” working years, from ages 25 to- For younger workers, as well as workers nearing retirement age, jobs are typically
harder to find, other things equal. Figure 12.3 shows unemployment rates for different
groups in August 2007, when the overall unemployment rate of 4.7% was low by histor-
ical standards. As you can see, in August 2007 the unemployment rate for African -
American workers was much higher than the national average; the unemployment rate
for White teenagers (ages 16–19) was more than three times the national average; and
the unemployment rate for African -American teenagers, at more than 30%, was over six
times the national average. (Bear in mind that a teenager isn’t considered unemployed,
even if he or she isn’t working, unless that teenager is looking for work but can’t find
120 section 3 Measurement of Economic Performance
© Inspirestock Inc./AlamyDiscouraged workersare nonworking
people who are capable of working but have
given up looking for a job due to the state of
the job market.
Marginally attached workerswould like
to be employed and have looked for a job in
the recent past but are not currently looking
for work.
Theunderemployedare people who
work part time because they cannot find
full-time jobs.