Unemployment Rate as an Economic Indicator
The official definition of unemployment is, people who are jobless and actively seeking work, according to the U.S. Bureau of Labor Statistics. The reason why the unemployment rate is an important economic indicator is that it gives clues about the overall health of the economy. Working people drive up the economy, so the higher the unemployment rate, the more at risk is the overall well-being of a country’s economy.
One of the reasons why the unemployment rate matters so much is because this economic indicator creates a chain reaction. When people are out of work, they lose out on wages, and the country loses out on their economic contribution. These same workers lose their purchasing power, which then affects other workers and could create unemployment for them.
Unemployed individuals purchase far less than employed individuals. Consumer spending makes up 70% of the United States’ economy, so when people stop purchasing, this has a direct effect on the health of the U.S.’s economy.
The Covid-19 pandemic had a serious impact on the economy, as over 23 million U.S. workers lost their jobs, according to the Bureau of Labor Statistics. The unemployment rate rose sharply in April 2020 — from 10.3 percent to 14.7 percent between March and April 2020, the highest ever recorded.
The pandemic affected all sectors of the economy, but the hardest hit sectors were the hospitality and service industries. The leisure and hospitality sectors of the economy lost the largest numbers of jobs since January 2020, according to Congressional Research Service. The COVID-19 pandemic forced people to stay indoors, which had a direct effect on people’s ability to consume and participate in the economy. The pandemic created fear in people’s minds and no one wanted to stay in a hotel, travel, or go outdoors.
This graph shows the historical trend in the unemployment rate, and it clearly records that unemployment reached its peak in April of 2020. One of the reasons for the steady decline after April 2020 could be the result of different laws passed in response to the pandemic, such as the Coronavirus Tax Relief and Economic Impact bill. Providing stimulus checks to American families at a time when most have lost their jobs was a way to keep the economy going and boost spending and purchasing power. For an economy like the United States, which depends largely on consumer spending, sending stimulus checks to American families was a way to keep the economic activity going, despite people losing their jobs.
