The unemployment rate is a key measure of labor underutilization and an important factor in assessing the health of the job market and economy. It is calculated by dividing the number of unemployed people by the total workforce and expressing it as a percentage. Unemployment statistics are typically based on household labor force surveys, although they may also be compiled using other data sources such as administrative records or population censuses.
The most common measure of unemployment is the U-3 rate, which includes people who are not working but are actively looking for jobs and are available to work. This statistic is calculated by dividing the number of unemployed by the total workforce, which includes workers employed full time and those working part-time for economic reasons (i.e., those who would prefer a full-time job but cannot find one). The definition of “actively seeking work” is quite broad and includes activities such as contacting prospective employers, visiting employment agencies or posting resumes online. It excludes people who do not meet the criteria for unemployment, such as those who are permanently unable to work due to a disability or those who have dropped out of the labor force altogether for cyclical reasons.
The U-3 unemployment rate is an essential metric, but it is important to follow disaggregated metrics as well. There are six different measures of unemployment, ranging from the more restrictive U-1 to the more expansive U-6, that offer more context about labor market dynamics. For example, the U-4 rate includes people who are both unemployed and discouraged, while the U-6 measure adds in those who are working part-time but want a full-time job and those who are marginally attached to the labor force (i.e., those who want to work but have not searched for a job in the past four weeks).