The unemployment rate is a key measure of the health of a nation’s job market. It’s calculated through a monthly survey of the labor force and includes only those people who are looking for work or who have lost jobs and stopped searching. It’s a lagging indicator, meaning that when the economy is doing well it can take months or even years for the unemployment rate to drop.
A wide range of factors influence the unemployment rate. Some of these are cyclical and occur with changes in economic activity, such as booms and busts. But others are structural, and if they persist over time can have long-term effects on the jobless rate. These can include trends like the emergence of new technologies that increase worker productivity and lower the “natural unemployment rate” (NAIRU). Another example is the slowdown in labor force participation that began around 2000 as Baby Boomers retired from full-time employment.
The most widely used unemployment number is U-3, which counts unemployed people as a percentage of the labor force. But other metrics, known as U-1 through U-6, offer more granular details. For instance, LISEP’s True Rate of Unemployment, which started tracking in 2020, encapsulates workers who are functionally unemployed and struggling to make ends meet by working part time or earning poverty-wage salaries. The aim is to highlight the nuances of a labor market that are missed by other economic indicators.