A key economic indicator, unemployment measures the number of people without a job. Economic fluctuations are a major contributor to the rise and fall of the unemployment rate. During periods of economic decline or recession, businesses may have to cut back on production or lay off employees to maintain financial stability. Conversely, periods of economic expansion or growth can increase the demand for goods and services, leading to new hiring and higher employment rates.
Unemployment statistics are usually based on household labor force surveys or administrative records. Household labor force survey data is the most comprehensive and comparable source of unemployment information. The official unemployment rate (U-3) is based on the total number of unemployed individuals as a percentage of the civilian labor force. Alternative unemployment rate measures are also used, such as the U-1 rate (unemployed individuals who have been out of work for 15 weeks or longer), the U-2 rate (individuals who have lost their jobs or completed temporary jobs) and the U-4 rate (the U-3 rate plus discouraged workers who give a reason why they are no longer looking for jobs).
High unemployment can be detrimental to the economy in many ways. For example, those who are out of work do not purchase goods and services, so their spending does not stimulate the economy. In addition, the stress of losing a job can have negative effects on an individual’s mental health, which can lead to other problems in his or her life.
