Caroline Rivers and Parker Skinner
While the terms employment and unemployment may seem straightforward, not all without a job are counted as unemployed. To be considered unemployed, one must not only be without a job, but also seeking a job and available to work. For example, the retired and disabled are not counted as unemployed-- one group is not seeking jobs, while the latter is not available to work.
Additional groups represent how the unemployment rate can be distorted by either overstatement or understatement. The first is discouraged workers, jobless individuals who are not counted as unemployed because they have not been actively seeking a job in the past 4 weeks, typically due to a lack of success in their recent job searches. These workers fall under the umbrella of marginally attached workers, those who want a job and have searched for one in the recently past, but are not currently looking. Underemployed workers, those who want a full-time job but are working part-time due to a lack of full-time positions, are also not counted in the unemployment rate.
Below is a graph representing the difference between the reported unemployment rate versus the unemployment rate when these uncounted groups of marginally attached workers and underemployed workers are included.
When compared to the chart of Civilian Unemployment rate shown below, you can see the rate is much higher when these groups are considered, an example of how the unemployment rate can inaccurately reflect the state of the economy. For example, in June 2009 the civilian unemployment rate is 9.5%, while it is 16.5% when marginally unattached and underemployed workers are accounted for.
Here the ever-changing rate of unemployment is presented using data from the end of 1989 until December 2017. The concept of natural rate of unemployment is also shown as the rate has never and will never fall to 0% (in fact over this time period it rarely drops below 4%).
This next graph presents the fluctuating GDP growth rate over the same time period as the above graph. As you can see the growth rate of GDP is inverse to the unemployment rate, i.e. when the GDP change is negative the unemployment rate rises. When the GDP change is positive yet unemployment still rises it is known as a jobless recovery. This phenomenon was evident in 1992, a period of economic growth also known as a growth recession.