The unemployment rate is a key indicator of the health of a country’s labor market, and it gets a lot of media attention, especially during challenging economic times. This is because high levels of unemployment adversely impact the spending power of families, can reduce employee morale and diminish an economy’s overall output. In some cases, the Federal Reserve may employ various fiscal policies in order to combat continuing high unemployment rates, such as implementing expansionary monetary policy or offering job-creating government contracts.
Unemployment is a cyclical phenomenon, with periods of recession and economic slowdowns contributing to rising unemployment rates. This is because businesses are often forced to cut costs in order to maintain profitability, and layoffs often occur. On the other hand, periods of economic growth and expansion usually lead to an increase in hiring, as companies seek workers to meet increased demand for their products.
There are several ways to measure unemployment, with the official rate that is quoted in the press being the U-3 rate (which includes all those without a job, including discouraged workers). Other measures include U-1, which counts people who have been out of work for 15 weeks or longer, and U-5, which adds those who are marginally attached to the labor force.
All of these unemployment estimates are based on surveys, which means that they are not a complete count of all jobs and all job seekers. However, according to the Bureau of Labor Statistics (BLS), there is a 90% chance that the monthly unemployment estimate from the sample survey will be within +/- 130,000 of the figure obtainable from a full census of all jobless workers.