Accuracy of the Unemployment Rate
There are information that are not considered in the labour force and it impacts unemployment rate.It can make it either understated or overstated.
Not included in the unemployment rate:
  • Discouraged workers-workers who have abandoned the search for a job because they were unable to find work
    • this makes the unemployment rate understated because it makes the rate look lower than it actually is.
    • the most amount of discouraged workers is right after contraction and before a trough in the business cycle.(this when we have the most understated unemployment rate and unemployment rate quoted at this time is biased)
    • when discouraged people come back the unemployment rate goes back up( this happens after trough to expansion phase of the business cycle)
  • Underemployed- not working as much as you want or working below your qualifications
    • this also makes the unemployment rate understated because the part time people want full time work
  • illegally getting EI
    • makes the unemployment rate look overstated because you are considered unemployed even though you are working
  • underground economy
    • this makes the unemployment rate overstated as it make the rate look higher than it really is because the workers in the underground economy are not considered as employed
    Note: if you want to compare US and canada's unemployment rate, you have to remove 1% from canada's unemployment rate.
Dr. Stephanie Powers, "Unemployment", Intro to Macroeconomics.(Lecture, Donald School of Business, Red Deer Alberta, Winter 2012)