EXPLANATION: Civilian Unemployment Rate
Released by Bureau of Labor Statistics (BLS)
Released Monthly
The unemployment rate is a percentage of the labor force that is unemployed but actively seeking work. The labor force is defined to be all people except the following:
- potential workers that are not seeking work
- juveniles 16 years of age or younger
- people that are institutionalized - e.g. in mental hospitals or correctional facilities
The three types of unemployment:
- Frictional unemployment - consists of search unemployment and wait unemployment. This correctly implies that labor markets do not operate perfectly nor instantaneously in matching workers and jobs. Unemployment will never be 0% because frictional unemployment will always exist.
- Structural unemployment - unemployment resulting when the skills do not match those required for jobs. That is skills become obsolete.
- Cyclical unemployment - unemployment caused by the recession phase of the business cycle
Measuring Unemployment
Unemployment rate = (unemployed / labor force) * 100
This calculation of unemployment rate is criticized for many reasons
- by counting part-time workers as fully employed, the calculation understates unemployment
- there are numerous workers who, after unsuccessfully seeking employment, become discouraged and drop out of the labor force. The number of discouraged workers is larger during recession. Because discouraged workers are not counted, this calculation understates the unemployment rate
- People provide false information
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