The Unemployment Rate Explained
In the United States, the unemployment rate is the percentage of the workforce that is not currently employed and is actively looking for work. A healthy economy (especially in the US) will typically, but not always, have a relatively low employment rate.
Who’s in the workforce?
The exact percentage of people who are unemployed is not as black-and-white as who works and who doesn’t. The agreed definition of unemployment as set by The World Bank is “the share of the labor force that is without work but available for and seeking employment.”
Who exactly is in the “labor force” in terms of age varies from country to country. Nevertheless, when a person starts working (in the United States it’s typically the age of 16) and desires to continue working and receiving checks, they will be considered a member of the workforce. Even if someone works an hour a day, he or she will be considered an active member of the American workforce. If a person is no longer working, whether from being fired and is searching for a new job, he or she is now considered unemployed. According to the Economic Policy Institute, a person is no longer considered part of the workforce after no longer looking for work for four weeks.
Those out of work are entitled to receive unemployment benefits from the government as long as they meet certain criteria that vary from state to state. To be eligible, the person must no longer receive any income from past employers. Also, you don’t get it if you quit, only if you’re laid off.
Who isn’t?
While it may sound strange, not everyone who works is considered employed. If a job pays solely in cash, is illegal, or if income is not taxed, workers in that profession are not technically employed. Independent contractors who don’t report their taxes are also not considered part of the workforce. But wait, would they be considered unemployed? Probably not.
Those who are retired or are disabled and unable to continue working are no longer considered workforce members. They are still eligible for a separate set of benefits.
College students are also not considered unemployed even if they are full time students and have no means of income at all.
What does the rate tells us?
One of the main uses of the unemployment rate is giving an idea of the economy’s health. Typically, the US is in a stable period when the rate is between 2%-3%. In the United States, the rate has been steadily up and down until The Great Recession, when the rate went up to 10% and remained high for longer than usual unemployment spikes. This was because many of the country’s jobs disappeared after the housing market crashed. Many of these workers never went back to their old jobs, but the unemployment rate steadily declined throughout the relatively stable 2010s.
The rate continued to drop without any major rise unlike times in the past century. The rate skyrocketed dramatically when much of the workforce lost their jobs as a result of the COVID 19 pandemic. Just as dramatically as the unemployment rate spiked, it declined as EDD benefits ran out and businesses reopened. As of 2022, the rate is at 3.5%, almost exactly the same rate as in February 2020, immediately before the COVID 19 lockdowns.
The employment rate is another economic indicator and the opposite of the unemployment rate. It is the percentage of the workforce currently employed. This indicator is often seen as a more accurate indicator of the economy because the unemployment rate is not taking into account every reason a person might no longer work, whereas the employment rate is simply who receives at least one hour of labor that is taxed.
