On Friday, the U.S. Bureau of Labor Statistics is expected to release the monthly Employment Situation report, which is the benchmark for the headline unemployment rate. Headline, or U-3, unemployment is a measure of how many members of the workforce — defined by the BLS as the set of Americans who are both eligible and willing to work — are actively seeking employment. In September, this totaled 11.3 million people, or 7.2 percent of the American labor force.
The headline unemployment rate can be misleading, and it often paints a rosier picture of labor market conditions than is called for. The headline rate doesn’t include marginally attached or discouraged workers — those who are underemployed and those who have given up on searching for a job, respectively. What’s more, the headline unemployment rate is sensitive to changes in the labor force participation rate, or the share of all adults who are willing and able to work, be they already employed or looking.
As of September, the labor force participation rate was 63.2 percent, flat with August, and substantially lower than its pre-crisis level of about 66 percent. This reduction in the labor force participation rate has helped reduce the headline unemployment rate without actually raising the overall level of employment or improving the health of the labor market.
Because the headline unemployment rate offers an incomplete picture of the labor market, observers often turn to alternative metrics. One popular alternative is the U-6 unemployment rate, which counts not just those job seekers included in the U-3 (headline) rate, but also those who are marginally attached to the workforce (underemployed) and people working part-time for economic reasons. This measure of unemployment fell from 13.7 percent in July to 13.6 percent in August, its lowest level since 2009.
Another metric is the payroll-to-population ratio, which is a measure of the percentage of the total adult population that is employed full-time. Gallup has been tracking this metric since at least 2011. On Thursday, Gallup reported that its measure of the payroll-to-population ration rose slightly to 43.8 in October, up from 43.5 in September. This rate, though, is still 1.9 percentage points below its year-ago level.
Some economists have argued that the Federal Reserve should target a measure of full-time employment such as the payroll-to-population ratio instead of headline unemployment because of some of the problems outlined above. Federal Reserve Chairman Ben Bernanke has already conceded that the headline unemployment target may need to be adjusted in light of changes to the labor force participation rate.