Unemployment rate is one of the most closely watched economic indicators, along with gross domestic product and inflation. The unemployment rate measures the number of workers without jobs, or “discouraged workers,” divided by the labor force, which is the total of people who have either a job or are seeking employment. It is usually seasonally adjusted to remove variations in the labor force caused by changes in weather and other factors. The Bureau of Labor Statistics (BLS) produces the figures, which are grouped into six categories, U1 through U6. The most widely used measure is the U-3 unemployment rate, which covers those who have been unemployed for 27 weeks or more and are actively searching for work. Other measures, such as long-term unemployment, or underemployment, are also available.
In addition to its well-known negative ramifications for individuals, high unemployment has also had devastating effects on economies. It reduces consumer spending, which in turn causes businesses to cut back on hiring, and thus the economy goes into a downward spiral. In this way, unemployment is a self-perpetuating cycle that is difficult to break.
Because of the complicated nature of measuring the number of unemployed, there are several different ways to calculate unemployment rates, and the results can vary dramatically between countries. For example, the Eurostat definition of the labour force excludes those who are not seeking work, while the BLS definition includes anyone who is 16 or older and has been looking for a job in the past four weeks. The resulting differences in the definitions of the labour force and unemployed can cause significant fluctuations in unemployment rates over time, even when economic conditions remain relatively stable.
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