A key measure of the health of a country’s economy, the unemployment rate tells us how many people in a given country are not working and are actively looking for jobs. However, the official headline unemployment rate (known as U-3) doesn’t account for Americans who have stopped looking for work, which can distort our view of how the economy is doing. That’s why we follow the true unemployment rate, which includes discouraged workers—a much more accurate picture of how the economy is performing.
Unemployment rates are used by investors, government officials, and the general public to understand how the economy is doing. When the unemployment rate is high, it means that people are having a hard time finding jobs and making ends meet. This can lead to social problems, and it makes a country less attractive to foreign investors, which in turn reduces the amount of investment funds it receives.
The unemployment rate is determined at the national level and by regional or local governments via labor-force surveys conducted regularly. International organizations such as the OECD and the World Bank also record and publish unemployment data for a large number of countries on an ongoing basis. Unemployment is an important indicator because it shows the ability of a nation’s workforce to produce goods and services. When a lot of people are not working, the economy can’t produce as much as it would otherwise.