The unemployment rate provides a key piece of information about the health of the labor market. It is considered a critical indicator when determining monetary policy and making strategic economic decisions. However, there are many different ways of calculating the unemployment rate and some countries use a different measure than others.
The U-3 unemployment rate is the most commonly used measure of unemployment in the United States and is based on a monthly survey conducted by the Bureau of Labor Statistics (BLS) in which about 60,000 households are asked whether their members are employed or looking for work. Those who do not have a job and actively searched for one within the past four weeks are counted as unemployed. The BLS also tracks underemployment, which is defined as those who work at least 35 hours a week but cannot find a full-time job or earn enough to meet their basic needs. LISEP’s True Rate of Unemployment uses the BLS data to track this important economic indicator.
The unemployment rate is typically influenced by the business cycle. When businesses are experiencing strong demand, there are more jobs available and the unemployment rate is low. Conversely, when demand is weaker and consumers are spending less, companies reduce their staffing levels by laying off workers and the unemployment rate rises. This process is a vicious circle and can only be broken with external forces, such as government intervention in the form of increased employment subsidies or increased money spent on infrastructure projects.
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