Unemployment is a key economic indicator that provides insight into the health of the labor market. A high unemployment rate often indicates a strong economy, but it can also indicate a weak one. There are several different ways to measure unemployment, and some measures can provide more insights than others.
The official unemployment rate is based on a government survey of households that asks people whether they are employed or unemployed. The survey excludes people who aren’t working for pay and those who have stopped looking for work (also called discouraged workers). It can be difficult to compare unemployment rates between countries because the way these surveys are done vary widely. Fortunately, there is an international standard for unemployment statistics, so apples-to-apples comparisons should be possible.
While the official unemployment rate peaks and troughs with recessions, other measures of labor market health are even more telling. A broader measure of unemployment called U-6 includes not only those who are currently unemployed, but those who want full-time jobs but can’t find them and those who are working part time but would prefer to be working more hours. It also includes those who are “marginally attached” to the workforce, meaning they are searching for work but haven’t looked in the past four weeks.
A broader measure of job market underutilization, called U-5, adds in involuntary part-time workers. In the chart below, you can see that U-6 has risen to levels not seen since 1948. Another important statistic is the proportion of the unemployed that are long-term unemployed, a figure that has skyrocketed during the current recovery. As of May 2010, this percentage had reached 46 percent, far higher than the 20-to-25 percent peaks in the post-World War II period.