The unemployment rate is one of the most widely watched indicators of economic health. It is used by analysts, investors and policymakers to gauge the strength of the economy and to make decisions about business investment and tax policy. However, there are many different ways to measure unemployment. Some are more accurate and more detailed than others.
While there is much debate about what causes unemployment, economists do agree that it is a result of forces in the economy and the workforce that vary from time to time. These include the usual pattern of businesses expanding and contracting in a dynamic economy, social and political factors that affect people’s willingness to work or to seek employment and public policies that can either encourage or discourage job-seeking.
In addition to the official unemployment rate (U-3), there are several other measures of labor underutilization: U-4 – Unemployed people plus discouraged workers (not included in the headline U-3 number seen in the news) U-5 – Part-time workers who want to be full-time but can’t find it and U-6 – all those in the above categories as well as marginally attached to the labor force (not looking for work but not discouraged or ready to quit). Each month, the Bureau of Labor Statistics surveys approximately 60,000 households in person or by phone. The data is then analyzed by race/ethnicity, age, veteran status, gender and geography to add more nuance to the employment picture.
In general, high unemployment reduces consumer spending, a key driver of economic growth. This, in turn, can lead to reduced production and more layoffs. It can also increase the burden on governments through greater reliance on social welfare programs and lost tax revenues.
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