The unemployment rate is a key indicator of labor market health and economic performance. It measures the percentage of people who are jobless and actively seeking work, but have been unable to find it. It is the main measure of labor underutilization used by policymakers to steer the economy and counter unemployment.
Unemployment rates fluctuate with the business cycle. Typically, when businesses are hiring more workers and offering higher wages, the incentives for individuals to look for jobs are greater. This leads to a lower unemployment rate. Conversely, when businesses are not hiring and offering smaller wage increases, the incentive to look for jobs is lower. This results in a higher unemployment rate.
The current official unemployment rate is based on household labor force surveys conducted by the Bureau of Labor Statistics (BLS), an agency within the Department of Commerce. In addition to measuring unemployment, the surveys measure other aspects of the labor market, including underemployment. Underemployment refers to the number of individuals who have settled for employment below their skill or experience level—for example, a mechanical engineer who is driving a taxi.
High unemployment is a costly problem for both the individuals who lose their paychecks and the country as a whole. Individuals who are unemployed miss out on the social and economic benefits of working, while governments have to shoulder an increased burden through welfare programs and lost tax revenue. Moreover, a prolonged period of high unemployment can have lasting effects on communities, such as increasing crime levels and erosion of community cohesion.