Unemployment rates can be a critical indicator of an economy’s health. The higher the rate, the more difficult it is for consumers to buy goods and services that companies are producing, and the more likely the country is to fall into a downward economic spiral. High unemployment can be demoralizing to workers and their families, as well as a drain on government resources through increased reliance on social welfare programs and loss of tax revenue.
The most widely quoted unemployment rate is U-3, which refers to people who are jobless and actively seeking employment. It excludes those who have given up looking for work, as well as those who are employed but not working at full capacity (for example, a mechanical engineer working as a taxi driver). More comprehensive measures of labor underutilization exist. For example, the Bureau of Labor Statistics publishes an alternative measure, U-6, that includes discouraged workers (U-3) as well as involuntarily part-time workers who want full-time work and have been searching for more hours (U-4), and so-called marginally attached workers who would like a job but are not currently looking for one (U-5).
While economists and scholars debate how to define and measure unemployment, all agree that high levels can be bad for the economy and for society. High unemployment can reduce consumer spending, which can lead to businesses contracting and laying off workers, a cycle that can continue until there is an intervention from outside forces.
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