What's The Real Unemployment Rate?

To understand the unemployment rate, it's important to understand a few terms. First, labor force is the number of people (typically just those over the age of 16 and not in the military) who either have jobs or are looking for jobs. People considered not in the labor force are retirees, students, stay-at-home parents, and others who are not employed and not looking for work.

The unemployment rate is a measure of the number of people in the labor force who do not have jobs divided by the total number of people in the labor force.

This measure of unemployment is convenient - the U.S. Department of Labor uses data from state unemployment offices (based on the number of people who filed weekly unemployment claims) to calculate the rate.

But it's not entirely accurate because many people are not counted:

• Those for whom unemployment insurance benefits have ended,

• Those who had been looking for a job for so long that they gave up (but who still do not have a job and want one),

• Those who lost jobs and would qualify for unemployment insurance benefits but do not apply, and

• Students who have recently graduated and cannot find jobs - but are not eligible for employment because they were not previously employed

In addition, the unemployment rate doesn't account for underemployment. In the aftermath of the Great Recession, many employees who had been laid off from full-time, year-round work were only able to find part-time, part-year, or temporary work. They are technically employed, but in many cases not fully employed - they don't earn as much as they had, which often makes it difficult to support their previous lifestyle.

The U-6 Unemployment Rate

There is another unemployment rate used frequently in research called the U-6 unemployment rate. It is defined as the total number of people who are unemployed (per the official definition) as well as all marginally attached workers and those employed part-time for economic reasons. The U-6 rate accounts for the people who are unemployed, underemployed, or discouraged. In December 2013, the official unemployment rate dropped to 6.7%. The U-6 unemployment rate stayed flat at nearly double that rate - 13.1% (Source: CNBC, 2013).