The unemployment rate is one of the most familiar labor market indicators, but it can mask a lot of nuances in how a country’s economy functions. A high unemployment rate can lead to a weak economy, and lowering the rate is often a key economic goal. To understand why, it’s important to examine the definition of unemployment and how that relates to other economic indicators.
Unemployment rates track the number of people without jobs as a percentage of the total labor force. The most well-known measurement is the U-3 unemployment rate, which tracks those who have lost their jobs and are actively seeking employment. The rate is calculated by dividing the total number of unemployed people by the total number of people in the labor force (this includes both those working and those who are not). Government agencies use surveys, census counts, and unemployment insurance claims to produce monthly unemployment figures.
LISEP’s True Rate of Unemployment measures joblessness differently from the official numbers by including those who want full-time work but cannot find it and those who are working less than they would like to be (the “discouraged workers”). This allows for more granular analysis about how a nation’s economy works and helps policymakers identify areas where the economy needs attention.
Having a stable income can have a positive impact on the economy by allowing consumers to spend more money, which in turn leads to business growth and higher wages. Conversely, when consumers aren’t able to afford basic necessities, they will cut back on spending, which can lead to lower levels of consumer demand and more layoffs. This cycle can continue unless outside forces intervene, such as federal stimulus programs.
