Focusing on the useful of the U3 unemployment measure

Brian Lynch, Lake Land College,

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In-depth group discussion is vital for this critical and higher-level activity on the usefulness of the U3 statistic.

Context for Use

This activity is appropriate for a Principles of Macroeconomics course. The instructor should have covered the labor force components (i.e., civilian non institutional population, civilian labor force, employed, unemployed, and unemployment rate). Prior to the activity, students will also have calculated the different labor force components. This activity should take 20 minutes. A class size up to 40 students would be the optimal size for this activity.


This activity is better to be used after the instructor has completed unemployment, business cycles, and stabilization policy. It will require significant in-group discussion. Students should not be distracted by discussion of how the U3 statistic can be seen as flawed. It is imperative that the instructor keep the group focused on the task at hand, and guide the students away from negative discussion of U3.
The activity is about looking at how the U3 is a headline statistic and at its importance for gauging the economy's health and its implications for policy implementation.

Expected Student Learning Outcomes

In this exercise students will be able to examine the reasons for the focus on the U3 unemployment statistic as a measure of the labor market in the United States.

Information Given to Students

Text students will see
We know that the widely reported unemployment rate (U3) leaves out the underemployed and those discouraged about their chances of finding work. Which of the following provides the best explanation for why this measure of unemployment continues to be featured so prominently in Federal Government news releases?

A. Politicians want a measure that minimizes the reality of unemployment, and makes things look better than they are.
B. U3 is regularly cited in the news because it provides a simple snapshot of the condition of the economy.
C. The official measure of unemployment has its flaws but alternative measures are even more problematic.
D.This statistic allows us to pinpoint where we are in the business cycle.
E. This statistic is useful for guiding short-term fiscal and monetary policy.

When time allotted for this activity is up, your group must hold up the letter that you chose as your answer

Teaching Notes and Tips

The instructor should just inform the groups of the time remaining during the activity, and check in with the groups to make sure that they are staying on task.
Because this is a higher level activity, I would recommend using it towards the end of the semester. I like to use it, after I have discussed stabilization policy. The U3 measure is followed closely as as it pertains to stabilization policy.Each group reporter will be required to explain why they did not choose other answers.

Students will be reminded the each month, the BLS releases the jobs report. Politicians and pundits alike will rejoice when the official rate hovers below 5 percent. When this number is above 6 percent, a less sanguine picture is portrayed. The instructor does not have to do anything beyond checking in on the groups and clearing up any questions they might have. Once the allotted time has been reached, students will be asked to hold up a letter showing their choice. As part of the discussion, students can be asked to explain why they did not choose a certain option. 
Option A deals with the misconception that the statistics are politically driven. Based on how the unemployment numbers are calculated, low unemployment numbers can sometimes hide the true level of economic frustration in the economy. 
Option B deals with the fact that the official unemployment rate, while not perfect, is a straightforward representation of where the economy is at a certain point in time. 
For option C, there is a belief that unemployment claims can serve as a better statistic. Students may pick this one, since people who are unemployed may be able to file unemployment claims. The BLS has a paragraph on their website explaining why unemployment claims do not serve as the barometer of unemployment. 
Option D can also be argued as an answer, since the level of business activity tends to move inversely with the unemployment rate
Option E can also be argued as an answer, due to the monthly release of the unemployment rate(and the typical lack of revisions). Since stabilization policies tend to focus on the short run, the unemployment rate can serve as a reasonable indicator of the state of the economy.
Students have to understand that unemployment statistics are just a snapshot of the economy. They need to think critically about the unemployment numbers
At the end of the activity, the instructor can remind students that there are other important statistics such as U-6 and the labor force participation rate. Textbooks rarely talk about other aspects in detail such as the LFPR and U-6. That is not a criticism; it is more of an observation. The instructor needs to make the students aware that U-6 and the LFPR are published by the BLS every month, but they are not the headline statistic.


If unemployment starts to increase, what stage of the business cycle is the economy in?
If unemployment starts to increase, what type of stabilization policy should be implemented?