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The unemployment rate is the percentage of unemployed individuals in an economy among individuals currently in the labor force. It is calculated as:
Unemployed individuals / total labor force Ă 100
where unemployed individuals are those who are currently not working, but are actively seeking work.
What the U.S. unemployment rate doesnât tell you
The headline U.S. unemployment rate, reported each month in the Employment Situation Summary (âjobs reportâ), is known as U-3. It includes people without jobs who are actively looking for work. People who have stopped looking arenât counted as unemployed. Instead, they show up in another closely watched measure, the labor force participation rate. For a broader view, thereâs U-6, which also includes people marginally attached to the labor force and those working part-time because they canât find full-time work.
The unemployment rate is determined at the national level and at state or regional levels via labor-force surveys conducted by the national statistical institute in each country. Organizations such as the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), and the World Bank also calculate and record the national unemployment rates of large numbers of countries throughout the world on an ongoing basis.
The unemployment rate is one of the primary economic indicators used to measure the health of an economy. It tends to fluctuate with the business cycle, increasing during recessions and decreasing during expansions (see figure 1). It is among the indicators most commonly watched by policymakers, investors, and the general public.
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Figure 1: UNEMPLOYMENT AND RECESSION IN THE U.S. From the 1970s oil embargoes to the COVID-19 lockdowns, each economic downturn (gray shaded area) was accompanied by a sharp rise in the unemployment rate (blue line).
Source: U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis, January 13, 2025. Annotations by EncyclopĂŠdia Britannica, Inc.
Policy makers and central banks consider how much the unemployment rate has increased during a particular recession to gauge the recessionâs impact on the economy and to decide how to tailor fiscal and monetary policies to mitigate its adverse effects. In addition, central banks carefully try to predict the future trend of the unemployment rate to devise long-term strategies to lower it.
Investors and the general public use the unemployment rate to understand the state of a countryâs economy and as a measure of how well the government is running the country. A high unemployment rate means that the economy is not able to generate enough jobs for people seeking work. High unemployment not only brings about deeper social problems and prolonged suffering for families, but also makes the country less attractive to foreign investors, thereby decreasing the investment funds flowing into the country.
Ideally, economic inflation shouldnât be too hot or too cold.
