Let's Break It Down - Unemployment Rate

Introduction

On the first Friday of most months, the government releases a report that investors, politicians, and economists watch closely. One of its headline numbers is the unemployment rate. It tells us how many people want a job but cannot find one. It is one of the most important measures of how healthy the economy is.

What Is the Unemployment Rate?

The unemployment rate is the percentage of people in the labor force who do not have a job but are actively looking for one. The labor force includes people who are working or seeking work. People who are not looking, like most full-time students and retirees, are not counted. If 5 out of every 100 people in the labor force are jobless and searching, the rate is 5%.

How It Is Measured

The Bureau of Labor Statistics calculates the rate using a monthly survey of about 60,000 households. Survey workers ask people about their job situation. The same report also counts how many jobs employers added, using a separate survey of businesses. Together, these numbers give a picture of the job market.

What It Does Not Show

The unemployment rate does not count people who have given up looking for work, called discouraged workers. It also counts part-time workers as employed, even if they want full-time jobs. That is why economists look at other measures too, like the labor force participation rate. A low unemployment rate is generally good, but very low rates can sometimes push wages and prices up.

Conclusion

The unemployment rate measures the share of people who want work but cannot find it. It comes from a monthly government survey and helps guide decisions by the Federal Reserve and businesses. It is important, but it does not tell the whole story. Watch the jobs report to see the economy in action!