Unemployment is a major economic issue with profound effects on individuals, communities, and the economy as a whole. People without a job are unable to purchase goods and services, which slows economic growth. Moreover, long-term unemployment can erode professional skills and make it more difficult to find work in the future. In turn, this can lead to a vicious cycle of reduced consumption, reduced production, and more unemployment.
The official unemployment rate, calculated by the Bureau of Labor Statistics (BLS), is a key indicator of labor market health. It is based on a monthly survey of households, including those without a job and those who are employed but looking for work. However, the headline U-3 unemployment number does not fully capture labor market slack. To get a fuller picture, economists look at the broader measure of underemployment, which includes involuntarily part-time workers, people who want to work more but have settled for less than they would like, and discouraged workers who are available for work and actively seeking it but have given up looking.
During the COVID-19 pandemic, these measures may not behave as they usually do. For example, many people may drop out of the labor force for reasons other than lack of employment or searching for jobs – such as taking sick leave or caring for children. Similarly, many people who are working but have seen their hours reduced by companies as a result of the pandemic might not be counted as employed or unemployed. Some economists have developed their own methods of adjusting the unemployment rates to account for these unusual factors. For example, Jason Furman and Wilson Powell have developed what they call a “realistic unemployment rate,” which attempts to capture the misclassification of workers as well as structural reasons for dropping out of the labor force.
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