The unemployment rate is a key measure of labor market conditions, and one of the most important economic indicators. A high unemployment rate can signal serious problems in the economy, while a low one indicates that the labor market is functioning well and that workers are easily finding jobs. The Bureau of Labor Statistics (BLS) reports monthly on the unemployment rate by using a sample survey of households. The survey does not include people who are neither employed nor looking for work, which excludes many students and homemakers. Therefore, there is a good chance that the monthly unemployment estimate differs from the actual population values.
The official unemployment rate, U-3, only counts individuals who are jobless and actively looking for employment. But a more comprehensive measure of labor underutilization, called U-6, includes these individuals plus discouraged workers who have given up looking for work and marginally attached workers (people who want a full-time job but have settled for part-time work) and those working below their skill levels (e.g., a mechanical engineer who drives a taxi). These additional groups help to shed light on the degree of structural unemployment in the economy.
In general, the unemployment rate rises during a recession and falls during an economic recovery. However, in some cases unemployment does not decline in lockstep with an increase in economic growth. This is because, in early stages of a recovery, businesses prefer to use existing workers more efficiently (for example, through higher productivity) rather than add new employees. Eventually, as the recovery gains momentum, the business efficiency gains may be sufficient to allow businesses to hire more employees.