The unemployment rate is a key indicator of an economy’s health. A high unemployment rate can lead to a number of economic problems, including reduced consumer spending, which is a crucial driver of economic growth. High unemployment can also increase reliance on social welfare programs, which can strain government budgets and lead to tax increases. A low unemployment rate, on the other hand, can help a nation achieve healthy economic growth and raise living standards.
Unemployment is a complicated concept and there are several ways to measure it. The Bureau of Labor Statistics (BLS) releases monthly employment reports that include data on unemployment. The most commonly quoted unemployment rate is the U-3 measurement, which counts people who don’t have jobs, have actively searched for work in the past four weeks, and are available to work. It excludes discouraged workers, who have given up looking for a job.
In addition to the U-3 measurement, the BLS has other measurements that are more inclusive of people who want to but can’t find work. The U-4 and U-5 measures, for example, count unemployed people plus discouraged workers and those who are working part time but want full-time jobs.
Although there is some uncertainty about what the natural rate of unemployment is, economists generally agree that it is between 4 and 6 percent. This is a range that was relatively stable under both the Reagan and George W. Bush presidencies, but increased dramatically under the Great Recession and stayed there until September 2012. A lower natural rate of unemployment is necessary for the economy to function at its optimal level.