Unemployment rate is a key indicator of the health and strength of a nation’s economy. It reflects the number of people out of work and actively seeking jobs. The higher the unemployment rate, the worse an economy’s labor market is performing. However, a high unemployment rate does not necessarily mean a country is poor; it is merely an indication that the economy is struggling to create enough new jobs.
The main source of information about a nation’s unemployment rate comes from government surveys and census counts. A variety of other measures can also be used to track unemployment, such as the number of job openings (JOBS) and unemployment insurance claims.
There are many reasons why the unemployment rate may rise or fall, but a significant one is that people who previously weren’t counted in the labor force now are. This is common in economic downturns, as workers become discouraged about their ability to find a job and decide to quit searching or only seek part-time employment. This makes unemployment statistics understate the amount of demand for work.
This is why economists often prefer to use alternative measures of labor market underutilization, such as the broader measure of U-6 unemployment that includes those who are involuntarily working part-time and those who would like full-time work but have settled for less hours. These numbers tend to be less volatile than those associated with the official unemployment rate, and they can provide more insight into the underlying strengths or weaknesses of a country’s economy.