The unemployment rate is a key measure of the health of an economy and its job market. Governments and international organizations such as the OECD, IMF, and World Bank track national unemployment rates on a regular basis. The unemployment rate is calculated as the number of unemployed individuals divided by the total labor force. It is the most common way to express unemployment and serves as a key indicator of the state of the global economy.
A country’s official unemployment rate is determined through a monthly survey conducted by the Bureau of Labor Statistics, which uses a sample of 60,000 eligible households to determine how many people are working and seeking jobs. The government also calculates more disaggregated metrics, referred to as U-1 through U-6, that offer a more comprehensive picture of the country’s employment situation.
Unemployment numbers are typically driven by changes in business cycles, when businesses are hiring or cutting back and offering higher wages to workers. But the COVID-19 pandemic has changed how people look for work, leading to unexpected fluctuations in the numbers.
In addition to those who are out of the workforce for reasons such as illness or caring for children, people who have stopped looking for jobs because they have become discouraged can hide underlying demand for work in the unemployment figures. This is one reason why the official rate understates true slack in the economy. To get a better picture, economists like Wilson Powell and Jason Furman at the Peterson Institute for International Economics use a different methodology to calculate a realistic unemployment rate.