Unemployment is a vital economic indicator, and it’s one of the few indicators that can help us anticipate the direction of the economy. A high unemployment rate can lead to social and political turmoil, and a low rate indicates that an economy is close to full health.
The official unemployment rate is calculated by the Bureau of Labor Statistics (BLS), an agency within the Department of Commerce, using data from a monthly survey of households. It’s important to note that the survey only includes a small percentage of the country’s population, and that it changes each month to strengthen its reliability.
There are a variety of different ways to calculate unemployment. The most common is the U-3 unemployment rate, which includes only those who are actively looking for work. This means they’ve made at least one contact with a potential employer or have searched for work by phone, internet, or at an employment office. It excludes people who have jobs but want to work more hours, those who are ill or disabled, and students.
The BLS also releases the more comprehensive U-6 unemployment rate, which includes unemployed people and those who are discouraged from looking for work. This number is a little more volatile, and it does not take into account people who are voluntarily dropping out of the workforce because they can’t find a job, or who are nearing retirement and decide to stop looking for a new position. It does include frictional unemployment, which occurs when it takes time for people to find new jobs after they lose or change their current ones.