Interpreting the Unemployment Rate (Michael Pakko Commentary)

The most commonly cited measure of labor market conditions is the unemployment rate, defined as the ratio of number of employed to number of labor force participants. But the unemployment rate expresses itself as a fraction of the labor force, it provides an incomplete picture, and it can give misleading signals. During the recent recession and recovery, for example, labor force participation has fallen sharply — and unlike unemployment rates, participation rates have shown little sign of recovery.

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