The unemployment rate is one of the most important economic indicators, influencing how the government sets monetary policy and makes other strategic economic decisions. While there are a variety of ways to measure unemployment, the general public is most familiar with the official figure reported by the Bureau of Labor Statistics (BLS). It includes people who have lost their jobs and are actively looking for work. People who have not lost their jobs but have given up looking for work are not counted as unemployed, and are instead categorized as part of the “labor force.” The number of people who have neither a job nor are searching for work is called the “real unemployment rate,” and it is more reflective of an economy’s real economic health than the official rate.
In addition to the official unemployment rate, BLS publishes other measures of labor underutilization. These alternative measures are often used to gain a better sense of the state of the labor market, especially during a recession. For example, in the COVID-19 pandemic, when overall unemployment peaked at 14.7%, a variety of alternative rates were available to provide a more accurate picture of the situation. Some of these alternatives, shown in the graph below, include individuals who are working involuntarily part time for economic reasons, discouraged workers, and marginally attached workers.
When there is high unemployment, families feel the effects both financially and psychologically. Unemployment has been linked to higher levels of depression and mental illness. It also reduces the amount of money that people can spend on goods and services, which has a ripple effect throughout the economy.
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