Unemployed, Underemployed…What Does It All Mean?
By Sara Sutachan, senior research analyst & Robert Kleinhenz, Ph.D. deputy chief economist

California’s housing market is closely tied to jobs, employment, and incomes for the obvious reasons. With a national unemployment rate of nearly 10 percent and well over 8 million jobs lost since the start of the recession, and with a statewide rate of almost 13 percent, many people have questions about employment and unemployment. So what does the unemployment rate really mean?

The unemployment rate is derived from a national survey of households and is conducted U.S. Department of Labor, Bureau of Labor Statistics (BLS). Based on the survey results, a person falls in one of three categories: employed, unemployed, or not a part of the labor force. The labor force is the sum of employed and unemployed persons. Someone is defined as unemployed if he or she is unwillingly out of work but still looking for a job. The unemployment rate is number of unemployed as a percentage of the total labor force, and was 9.7 percent for the US in March 2010.

That rate may be referred to as the headline unemployment rate, but there are broader measures of unemployment which include the underemployed and discouraged workers. Underemployed workers are included among the employed numbers, but are individuals who would like to work more hours than they currently work. Discouraged workers have stopped looking for work because they just could not find a job. By definition, they are not in the headline unemployment rate because they are not actively looking for work. Taking these individuals into account along with those who make up the headline rate defines a more comprehensive view of labor market health that includes the unemployed, underemployed, and discouraged workers (see figure). For March 2010, that rate was 16.9 percent, 7 percent higher than the headline rate. This broader measure of unemployment tracks closely with the headline measure that is so much a part of the commentary on the economy.

Because more individuals begin to look for work as the economy recovers, improvements in the unemployment rate and the labor market typically lag gains that appear in other economic indicators. So while the Great Recession may have already ended, it will take some time before the unemployment rate comes down.

                  Click on graph for larger view
 

For more information about how unemployment is calculated, you may visit: http://www.bls.gov/cps/cps_htgm.htm