The unemployment rate is a key economic indicator that measures the extent to which an economy can employ its citizens. It’s based on a monthly survey conducted by the Bureau of Labor Statistics. The number of people out of work is compared to the population’s working-age population, and includes those who have a job but aren’t employed or looking for one (along with students and homemakers). The percentage that are unemployed is called the “labor force participation rate.”
However, many factors can affect the unemployment rate. In the short run, changes in unemployment can reflect shifts in the supply of or demand for workers, but they can also be due to changes in the economy’s structure or institutions, such as stronger unions or stricter labor laws.
In the long run, trends in unemployment rates can be influenced by technological changes that increase worker productivity or demographic shifts that reduce the workforce. A policymaker who wants to manage unemployment should have a clear understanding of these dynamics.
High unemployment rates can hurt the economy in a number of ways, including by cutting consumer spending and leading businesses to reduce production. It can also lead to higher reliance on social welfare programs and reduced tax revenue. And it can erode the morale of those who still have jobs, making them more worried about losing their positions or less willing to search for new employment opportunities. This can have lasting effects on communities, even after employment rates have recovered.