The unemployment rate is a critical indicator of the health of a nation’s economy. It is a key factor in setting monetary policy and making strategic economic decisions. The unemployment rate measures the percentage of people out of work and actively seeking employment, as a percentage of the labor force (i.e., those who are working or looking for a job). There are several different methods of calculating the unemployment rate. The most widely cited statistic is called U-3, and it only includes people who have lost their jobs through no fault of their own (for example, they may have quit, or been laid off). There are also six disaggregated metrics, called U-1 through U-6, that provide a fuller context on labor market dynamics.
The most common method of calculating the unemployment rate is to use household labor force surveys conducted by the Census Bureau for the Department of Labor (BLS). These monthly surveys collect information about working and unemployed people from a large sample of households, typically 60,000 to 65,000. The resulting data is then used to calculate the national unemployment rate and other labor market indicators.
Many factors influence an economy’s unemployment rate, including the structure of its labor markets, wage and price inflation, and demographic trends. For example, Baby Boomers and Gen X are retiring at record rates, while Millennials have yet to enter the workforce in significant numbers. As these populations shift out of the workforce, they will likely contribute to a higher unemployment rate.