Yesterday we released a new monthly labor market indicator, an estimate of the number of “missing workers” (potential workers who are not working or looking for work because the job market is currently so weak). We also generated another new measure—what the unemployment rate would be if these missing workers were classified by the Bureau of Labor Statistics as actively looking for work (see below figure). As of the latest data available, August 2013, there were nearly 5 million missing workers. If these workers were actively looking for work, the unemployment rate would be 10.1 percent, not 7.3 percent.

Many have asked me if I think this augmented unemployment rate is the “true” or “real” unemployment rate, so I thought it’d be useful to clarify: The unemployment rate that BLS puts out is the true unemployment rate, and there are good reasons for the BLS to use the definitions it does. But the official unemployment rate is not currently the best measure of changes in the health of the labor market.

In other words, no, I don’t think my new measure is the “true” unemployment rate, but in today’s economy, I do think it’s a better measure than the unemployment rate for gauging trends in job opportunities and the overall health of the labor market

Technically speaking, my measure is the unemployment rate plus the “participation gap” (the participation gap is the cyclical decline in the labor force participation rate, i.e. the decline in participation that is due to the weak labor market, not other trends like retiring baby boomers). In other words, unlike the unemployment rate, this measure accounts for a key component of slack in today’s labor market—the fact that many workers have dropped out of, or never entered, the labor force primarily because job opportunities are so weak. The unemployment rate misses this piece entirely because jobless workers are only counted as unemployed if they are actively seeking work. If policymakers or commentators want the best gauge of trends in the health of today’s labor market and how much productive slack exists in the economy, they should not be looking at the unemployment rate, they should be looking at this (or some other measure uninfected by cyclical changes in participation, like the employment to population ratio of prime-aged workers).

*That is, every month the federal government is not shut down.