What is one reason why the overall unemployment rate understates the actual employment situation?

It does not consider all the unemployed people.

Explanation:

The unemployment rate is a percent expression of the jobless labor force in an economy. In calculating the unemployment rate, the bureau of labor statistics considers only the unemployed people who have been actively seeking work in the past four weeks.

Due to this reason, the unemployment rate does not include all the jobless people in the country. Unemployed individuals who have lost hope of finding work, and those who did seek employment get excluded. Those engaged in other chores like caring for the sick or the elderly are also not considered.