Unemployment is a key economic indicator that tells us about the state of the labor market. It is one of the three main indicators that economists follow closely along with gross domestic product and inflation. A high unemployment rate can indicate that the economy is not producing at full capacity and may need a stimulus, while a low unemployment rate could signal an overheating economy with potential risks of inflation.
EPI’s unemployment rates are based on monthly surveys conducted by the Bureau of Labor Statistics (BLS). The survey asks households whether they have a job or are looking for work. People who are unemployed are defined as not working for pay or profit for at least four weeks. Workers are considered “employed” if they have a job for which they are suitably qualified and are available to start work in the next two weeks.
The official unemployment rate, known as U-3, is a broad measure of labor underutilization that includes those who are out of work for 15 weeks or more and those who have recently completed temporary jobs. There are also other measures that include those who have a job but want more hours, those who have had to settle for part-time work, and discouraged workers who have given up searching for jobs.
The unemployment rate is calculated by dividing the number of unemployed workers by the total civilian labor force. This measure is a very important economic indicator and can affect monetary policy, spending decisions by government and businesses, investment decisions and consumer confidence. However, the rate can be misleading, because it only counts those who are actively looking for a job, rather than all those who could potentially be employed.