A key economic indicator, the unemployment rate measures the percentage of people who don’t have a job but are available and actively seeking one. It is a lagging indicator, rising and falling with changing economic conditions.
There are many reasons why a nation’s unemployment rate rises and falls. Some of these factors are structural, while others are cyclical.
Structural unemployment, for example, occurs when industries shrink and companies must lay off workers. Usually, these industries are losing market share to more modern, efficient competitors and are forced to cut costs in order to stay profitable. Structural unemployment tends to be longer-lasting than cyclical unemployment.
Cyclical unemployment is caused by recessions and other cyclical contractions of the economy. These cyclical contractions lead to lower consumer spending, which in turn leads to fewer jobs for workers. The cycle continues until the economy is pushed back into growth mode by outside forces, such as government intervention.
The official unemployment rate is based on a monthly survey conducted by the Bureau of Labor Statistics (BLS) on a sample of households. The survey counts only those who are considered part of the “labor force.” The number of unemployed workers is compared to the total population and the percentage of the population that has a job or is looking for work is determined. The BLS also produces five other categories that measure labor underutilization.
The True Rate of Unemployment (TRU) tracks the percentage of Americans that do not have full-time jobs, do not earn a living wage, or are underemployed – the latter is defined as working more than 35 hours a week for less than a living wage. The TRU is a critical component in determining a national policy that will benefit all Americans.
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