What’s the US Unemployment Rate?
The US unemployment rate is the percentage of people that are unemployed in the labor force. Most people assume this means it’s the amount of people in the US that are not working, which is not entirely correct. You have to understand who makes up the labor force to really understand what the US unemployment rate means.
Who makes up the Labor Force?
The labor force is the total amount of people that are employed and unemployed. Being employed means you currently have a job. Being unemployed means you don’t have a job, you are available to work and you are actively looking for a job. This last point is key.
If you are not actively looking for a job you are considered “not in the labor force.” Examples of people that are not in the labor force are students, retirees, and stay-at-home parents. In order to classify as actively looking for work, you must have been proactively trying to find a job within the last 4 weeks. Examples include contacting a potential employer, sending out your resume or checking job sites.
Also, the labor force does not include people that are on active duty in the Armed Forces and institutionalized individuals, such as prisoners or mental health facility patients. Also, only individuals 16 years and older are counted in the labor force.
How is the US Unemployment Rate determined and communicated?
Before the unemployment rate can be determined, we need to know the number of people employed and unemployed. This is done through a survey called the Current Population Survey (CPS), which is conducted monthly by a government agency called the The Bureau of Labor Statistics (BLS). The BLS surveys approximately 60,000 households (or approximately 110,000 individuals), which is supposed to represent the entire US population. The survey determines if someone is in employed, unemployed or not in the labor force. Once the BLS finishes the survey, they have all the employment data and they can calculate the unemployment rate.
The BLS releases the employment numbers on the first Friday of every month in The Employment Situation news release. This report includes not only the employment data but also any commentary about circumstances that could have affected the numbers, such as a natural disaster.
Why does the US Unemployment Rate matter?
The unemployment rate is supposed to indicate the health of the US economy. If the unemployment rate is low or going down, that usually means the economy is doing well or improving. If the unemployment rate is high or going higher, that usually means the economy is not doing well or deteriorating. For example, when you are employed, you are more likely to spend money than when you are unemployed. Therefore, the more people employed, the more money being spent, which helps the economy.