How Do We Track Unemployment & How Accurate Is It?
Victoria Labadie - Fotonomada / iStock.com  The GDP, which measures productivity and economic expansion, is one of the two most important statistics for gauging Americas economic health. The other is the unemployment rate. When people think of the Great Depression, they dont think of declining output as measured by gross domestic product. They think of people in raggedy clothes holding will work for food signs while standing in line for soup. Everyone knows that things are bad when jobs are scarce. Whats less known is how, exactly, the country tracks joblessness in the first place. The Economy and Your Money: All You Need To Know  See: What You Should Understand About Economic Inequality and Its Impact on You  There Are Several Unemployment Rates  The Bureau of Labor Statistics (BLS) is responsible for tracking and reporting all data related to unemployment in the United States. Each month, the BLS releases six different measures of the job market labeled U-1 through U-6. The official unemployment rate is U-3. When the news mentions the unemployment rate, thats the one theyre talking about. The BLS defines U-3 as the countrys total unemployed, as a percent of the civilian labor force.  Find Out: How Earnings Estimates Impact Your Investments  Labor Force Is a Subjective Term  The definition of labor force is one of the biggest controversies in American economic policy. The BLS excludes a large and critical third population from its definition of labor force: Those who are neither working nor looking for work. They include:  The more than 2 million Americans who are incarcerated  Those who are precluded from working due to a disability or illness  Those who left the workforce to raise children or who are on parental leave  Retired people  Full-time caretakers  Full-time college students  Important: Understanding Interest Rates  How They Affect You and the US Market  Story continues  A More Complete Measurement Tells a Different Tale  Critics of U-3 argue that the exclusion of these populations is misleading and that the measurement is artificially low. They recommend that the country instead adopt the U-6 designation, which does include these groups and is close to double the official unemployment rate. Unlike the broader U-6  known as the real unemployment rate  U-3 ignores:  The many jobless who simply gave up and stopped looking for work  Students who want to work part time but cant find jobs  Caretakers who would work if they could find a job that paid enough to hire a professional caretaker  Retirees who are unsuccessfully trying to reenter the workforce  New parents forced to sacrifice income to handle maternity/paternity obligations  People with illnesses or disabilities who want to work but cant find jobs  Millions of prisoners involuntarily removed from the labor force  Be Aware: What the Unemployment Rate Means for You and the Economy  Theres a Formula For Calculating the Unemployment Rate  For now, the official unemployment rate remains the standard despite the fact that it excludes more than 2 out of 3 American adults. The unemployment rate is calculated by dividing the number of unemployed people by the total labor force and multiplying the result by 100. More Economy Explained: Understanding US Productivity and All the Ways It Affects You  This article is part of GOBankingRates Economy Explained series to help readers navigate the complexities of our financial system.