The unemployment rate, which measures the number of people jobless as a percentage of the working-age population, is one of the most closely watched indicators of the economy. It is often compared to other economic metrics, such as gross domestic product and inflation, to determine whether the economy is healthy or not.
The official unemployment rate is published monthly by the Bureau of Labor Statistics (BLS), a part of the Department of Commerce. It includes only individuals who are jobless and actively looking for work, and excludes those who have dropped out of the workforce or have retired. There are other measures of labor underutilization that include discouraged workers and those who have given up their search for a job.
These alternative measurements offer a more comprehensive picture of the slack in the labor market. However, they don’t reflect the reality that many people who are unemployed are not really out of work; rather, they have had to accept employment below their skill and experience level – the mechanical engineer who drives a taxi, for example.
The unemployment rate fluctuates with the business cycle. During periods of growth, businesses create jobs, while during recessions they reduce payrolls. As a result, the number of jobless people rises. The rate is also affected by structural factors, such as the loss of a high-paying career or a lack of skills valued in the labor market. This kind of unemployment is sometimes called frictional unemployment.