Unemployment rate is a key indicator of the health of an economy and can have a significant impact on consumer spending, business investment, and economic growth. It also places a burden on the government through increased reliance on social welfare programs and lost tax revenue. Having a precise estimate of long-term unemployment trends is crucial to many policymakers, including the Federal Reserve, which has a mandate to achieve maximum employment and price stability.
In the United States, the Bureau of Labor Statistics (BLS) tracks the unemployment rate through a monthly survey of working-age households, in which interviewers ask about work status. The resulting figures are seasonally adjusted to avoid variations that depend on time of year and include those with full-time, part-time, or self-employed jobs. It excludes those who are in school, on maternity or paternity leave, or who are prevented from working due to health reasons. It also includes discouraged workers who have stopped looking for work because they are no longer interested or believe that there is no job available.
Historically, unemployment rates fluctuate with the business cycle. When companies are expanding and offering higher wages, they have more incentive to hire workers. Conversely, when the economy is contracting, businesses are less likely to increase hiring and may instead cut worker hours or impose pay cuts before firing employees. Because of this, it is common for unemployment to rise before GDP does and stay high well after the end of a recession.