Unemployment rate is one of the most important economic indicators, because it captures people’s sense of whether or not they have a job that pays enough to support themselves and their families. High unemployment can hurt the economy by reducing consumer spending, which is a key driver of growth. It can also reduce tax revenue, which can lead to higher government expenditures and deficits. In addition, high unemployment can increase crime rates and damage the social fabric of communities.
The official measure of unemployment is based on the Current Population Survey (CPS), a monthly survey of households conducted for the U.S. Bureau of Labor Statistics. The CPS offers a number of measures that range from the most restrictive, U-1, to the broadest, U-6. The official unemployment rate is the U-3 measure.
It is important to remember that, for government purposes, a person must be out of work and actively looking for employment in order to be considered unemployed. This is in contrast to the concept of a person who is “discouraged from looking for work,” which may include people who have searched for a job but did not find one or who have applied to a job but were turned down.
The natural rate of unemployment is the rate that would exist under a normal set of economic conditions, assuming that no major economic changes took place. This includes the usual pattern of businesses expanding and contracting their workforces in a dynamic economy, as well as any laws or institutions that affect workers’ eagerness to search for jobs or businesses’ willingness to hire.