Why does the unemployment rate underestimate the actual problem of unemployment?

Inhaltsverzeichnis Show

1. Unemployment Doesn’t Account for Discouraged Workers.
2. Unemployment Ignores Other Marginally Attached Workers.
3. Unemployment Doesn’t Separate Part-Time and Full-Time Workers.
4. Unemployment Doesn’t Consider Whether People Have Low-Paying Jobs.
5. Unemployment Doesn’t Capture the Long-Term Unemployment Rate.
Bottom Line
Financial Planning Tips
Why might the unemployment rate underestimate the true extent of unemployment?
Does the unemployment rate underestimate or overestimate the unemployment problem?
Why is the unemployment rate is usually understated?
How can the US official unemployment rate understate the problem of unemployment?

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The unemployment rate gets plenty of media coverage. This ratio represents the percentage of people in the labor force without jobs who’ve been actively looking for work within a four-week period. Many people believe that it’s a good indication of the economy’s overall strength. But others recognize that it has its flaws, as it can miss areas of the market entirely.

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1. Unemployment Doesn’t Account for Discouraged Workers.

Discouraged workers aren’t included in the official unemployment rate. These are the adults who’ve looked for jobs at some point in the past 12 months, but not in the four weeks before the Bureau of Labor Statistics (BLS) conducts its monthly survey of households. What’s distinctive about them is that they’re said to be “discouraged” because they’ve given up on finding jobs (at least temporarily).

The BLS focuses on several reasons why workers are discouraged. One explanation is that these individuals think they’re unqualified for the jobs that are available. Another is that they don’t believe there are enough jobs.

2. Unemployment Ignores Other Marginally Attached Workers.

A discouraged worker is an example of a marginally attached worker. Other marginally attached workers aren’t in the labor force because they haven’t looked for work in the past month for various reasons (even though they have looked for a job in the past year).

In other words, if you were looking for a job on May 1 but took a break in June to care for a sick parent or child, you’d be a marginally attached worker in July. But you wouldn’t be considered unemployed. Ignoring marginally attached workers in the official unemployment rate can make it seem as though there are fewer unemployed people.

3. Unemployment Doesn’t Separate Part-Time and Full-Time Workers.

Another problem with the official unemployment rate is that it doesn’t consider the quality of jobs that workers have. People are considered employed if they have part-time or temporary jobs. They’re also counted as being employed if they have low-skilled jobs that they took just to put food on the table.

4. Unemployment Doesn’t Consider Whether People Have Low-Paying Jobs.

Many people who can’t find jobs that match their skill level are forced to take jobs with low wages. These underemployed people make up a large part of the workforce. But the official unemployment rate (also known as the U-3 measure) doesn’t acknowledge them.

Without addressing the issue of underemployment, the unemployment rate paints a distorted picture of where the labor market stands. Having too many workers who are unhappy with their jobs or who aren’t reaching their full potential could ultimately be problematic. Paying off debt or saving for retirement can be challenging for a worker with an underpaid, part-time gig. Dissatisfaction with work can also lead workers to be less productive.

5. Unemployment Doesn’t Capture the Long-Term Unemployment Rate.

Anyone who hasn’t been working for at least 27 weeks is considered to be long-term unemployed. Millions of Americans fall into this category. But the unemployment rate doesn’t consider how long people haven’t had jobs.

Failing to focus on folks who’ve been out of work for a while can make it difficult to create policies that help them. A report from the BLS says that the long-term unemployment has recently declined. But from a historical perspective, it’s not as low as it could be.

Bottom Line

The unemployment rate isn’t an accurate measure of joblessness simply because it doesn’t consider everyone who doesn’t have a job. That’s why many economic experts instead focus on what’s known as the real unemployment rate.

The real unemployment rate (technically called the U-6 measure) is reported on a monthly basis in the jobs report along with the official unemployment rate and four other measures of unemployment. Unlike the official unemployment rate, however, it takes underemployed and marginally attached workers (including discouraged workers) into consideration as well as unemployed people.

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Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.

Why might the unemployment rate underestimate the true extent of unemployment?

Unemployment is generally underestimated as compared to its true extent when some people cease seeking a job if there are unable to get it in a specific time period, and these people are known as discouraged workers. Discouraged workers are not included in the labor force, due to which unemployment is underestimated.

Does the unemployment rate underestimate or overestimate the unemployment problem?

Answer and Explanation: In general, the unemployment rate underestimates the actual unemployment in a country. This is because: People who have given up their job search out of exasperation at their failure to find a job are not counted as unemployed.

Why is the unemployment rate is usually understated?

The official unemployment rate, which measures the proportion of the civilian labor force 16 years or older that is not engaged in productive activities but is actively seeking employment, might be either overstated or understated due to discouraged workers, part-time workers, and unreported legal or illegal employment ...

How can the US official unemployment rate understate the problem of unemployment?

The unemployment rate as it is measured officially is often criticized for understating the level of joblessness because it excludes anyone working at all or people who aren't looking for work. In particular, the official unemployment rate leaves out discouraged workers and the underemployed.