The unemployment rate is a key economic indicator, and it plays a major role in the health of an economy. It rises and falls with economic fluctuations. During recessions, businesses suffer from declining profits and shrinking markets, which may lead to layoffs or hiring freezes. During expansions, companies hire to meet increased consumer demand for goods and services. Those without jobs and those who have stopped looking for work are considered part of the labor force, and their numbers make up the unemployment rate.
The Bureau of Labor Statistics (BLS) calculates the unemployment rate each month using a sample survey. Tracking every unemployed person would be expensive and impractical, so the BLS uses a combination of methods to get accurate data on the size of the jobless population. One method, the U-3 metric, includes only those who have actively looked for employment in the past four weeks. The more comprehensive U-6 metric includes those with only temporary employment, those who are involuntarily working part time and those who have given up looking for work.
Unemployment can have negative impacts on people’s lives, both emotionally and physically. For example, a study by researchers at Penn State found that people who had been unemployed for long periods of time experienced worse physical and mental health than those who were steadily employed. Unemployment can also be financially devastating to families, as the loss of income reduces purchasing power and can cause debt problems.