The unemployment rate is a key economic indicator that measures the underutilization of labor. When people are unemployed, they are not able to contribute to the economy through their wages, and businesses are unable to sell products and services. Therefore, when unemployment rates are high, the economy is not performing at its best.
The official unemployment rate is calculated by the Bureau of Labor Statistics (BLS) through a monthly survey called the Current Population Survey (CPS). The survey has been conducted each month since 1940 and includes a sample of 60,000 households, or 110,000 individuals. This survey is used to produce the main estimates of employment, income, and other household characteristics for the U.S.
Different measures of unemployment exist, with the U-1 measure being the strictest and most restrictive. The most commonly reported number is the U-3 figure, which combines people without jobs and those actively searching for work. Actively searching is defined as individuals who are either contacting employers, going to job interviews, or sending out resumes. However, the U-3 number excludes some individuals who may be unemployed but are not actively looking for work. These individuals could be out of school, on maternity leave, or have been discouraged from seeking jobs by lack of success in finding one.
Another measure is the U-4 rate, which adds discouraged workers to those classified as unemployed. This rate also takes into account those who are working part-time but would prefer full time employment, and the marginally attached workers. These figures are more comprehensive than the official U-3 rate but still do not fully capture the extent of underemployment in the labor force.