The unemployment rate is a key indicator of the health of a nation’s economy. It influences monetary policy and strategic economic decisions. In addition, high unemployment impacts people directly. It erodes families’ purchasing power, depresses morale and reduces the productivity of the workforce.
The national unemployment rate is a percentage of the labor force that does not have a job and is actively searching for work. It is calculated monthly by the U.S. Bureau of Labor Statistics (BLS). The general public is most familiar with the official unemployment rate, U-3, which includes people who have been jobless for at least four weeks and are available to work. There are five other categories of unemployment, though, ranging from the more restrictive U-1 measure to the broadest, the U-6 measure.
There are many reasons why the unemployment rate may vary from one period to another, even in a healthy economy. One reason is “natural” unemployment, which results from the inherent differences in a country’s labor market characteristics. For example, the higher natural rate of unemployment in Europe can be attributed to stronger unions and stricter labor regulations that make workers expensive for employers.
Another factor is cyclical unemployment, which results from the typical ups and downs of a business cycle. The rate rises during a recession and falls as the economy recovers. It is important for policymakers to understand all aspects of unemployment, which is why the BLS makes information about the number of unemployed, their skill levels and other demographics available.