The unemployment rate is a key indicator of the health and strength of a nation’s economy. It is calculated by dividing the number of unemployed people in an economy by the total labor force. The government has been tracking employment rates since the 1940s. Unemployment is a significant factor in setting monetary policy and making strategic economic decisions. However, the headline unemployment numbers that are widely cited can often be misleading. The Bureau of Labor Statistics (BLS) produces monthly estimates of the unemployment rate using a sample survey. This sample survey consists of approximately 60,000 households, which translates to about 110,000 individuals. The BLS also calculates a more comprehensive measure of labor underutilization, called U-6, which includes discouraged workers and those who are employed part-time for economic reasons.
The main reason that the official unemployment numbers are sometimes misleading is that there are many ways to define unemployment. The most common metric is known as U-3, and it counts the total number of unemployed people as a percentage of the total labor force. Other indices limit who is counted as unemployed by only counting those who have lost jobs, are available to work but are not looking for employment, or who have sought employment in the past four weeks.
High unemployment is a big problem because it leads to a loss of income for those who lose their jobs, and it limits consumer spending, which makes up about 70% of a country’s GDP. It also hurts those who have jobs because they consume less, and it can make them feel bad about their job security.