Is the official unemployment rate misleading? A look at labor market statistics over the business cycle

In recent years, both economists and the popular press have asked whether the measured unemployment rate is “too low.” In particular, observers question whether current unemployment rates accurately reflect labor market weakness. By some conventional measures, the most recent recession was relatively mild. The official unemployment rate rose to a high of 6.3 percent in June 2003, which is low by historical standards (see figure 1), and real gross domestic product (GDP) declined by only 0.5 percent, compared with a 1.3 percent decline in the 1990–91 recession and an average decline of 1.1 percent during previous recessions from 1960 to 1981. At the same time, others have argued that this latest recession was not as mild for labor markets as suggested by the maximum unemployment rate level. Most point to the fact that based on payroll employment numbers, there were 1.8 percent fewer jobs in January 2004 than in March 2001.