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Economics & Personal Finance
How Unemployment Is Measured
BLS surveys and the U-3 rate
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Unemployment is measured to show how many people want a job but do not currently have one. In the United States, the Bureau of Labor Statistics uses the Household Survey to sort people into employed, unemployed, and not in the labor force. This matters because unemployment affects family income, business decisions, government policy, and the overall health of the economy. A low unemployment rate often signals a stronger job market, while a high rate can signal economic trouble.
Key Facts
- Labor force = employed people + unemployed people
- Unemployment rate = unemployed people / labor force x 100
- Labor force participation rate = labor force / adult population x 100
- Employed means a person worked for pay or profit during the survey week, or had a job but was temporarily absent.
- Unemployed means a person was not working, was available for work, and actively looked for a job in the last 4 weeks.
- U-6 includes unemployed workers, discouraged workers, other marginally attached workers, and people working part time for economic reasons.
Vocabulary
- Labor Force
- The labor force is the total number of people who are employed plus the number of people who are unemployed.
- Unemployment Rate
- The unemployment rate is the percentage of the labor force that is unemployed.
- Employed
- A person is employed if they worked for pay or profit during the survey week or had a job they were temporarily away from.
- Discouraged Worker
- A discouraged worker is someone who wants a job and is available to work but has stopped looking because they believe no jobs are available.
- U-6
- U-6 is a broader unemployment measure that includes unemployed people, some people who want work but are not actively looking, and part-time workers who want full-time jobs.
Common Mistakes to Avoid
- Counting everyone without a job as unemployed is wrong because people must be actively looking for work to be counted as unemployed in the official rate.
- Forgetting that the unemployment rate uses the labor force as the denominator is wrong because people not in the labor force are excluded from that calculation.
- Treating discouraged workers as officially unemployed is wrong because they are not actively seeking work, so they are usually counted as not in the labor force in the main unemployment rate.
- Assuming a falling unemployment rate always means the economy is improving is wrong because the rate can fall if people stop looking for jobs and leave the labor force.
Practice Questions
- 1 A town has 8,000 employed people and 500 unemployed people. What is the labor force, and what is the unemployment rate?
- 2 A country has an adult population of 200 million, with 130 million employed people and 10 million unemployed people. What is the labor force participation rate?
- 3 A person wants a job, is available to work, but has not applied for any jobs in the last 4 weeks because they think no jobs are available. Explain how this person is classified in the main unemployment measure and why U-6 gives a broader view.