The unemployment rate is another crucial economic indicator which has been used by many market investors and traders who use the economic calendar to get the information on employment data to gauge the state of the economy. As it implies, the unemployment rate is a percentage of unemployed people in the total labor force. Or you can say it measures the percentage of people (16 years or above) who do not have any job but have been looking for work in the past four weeks or currently available for work.
This is why it is widely recognized as a key indicator of labor market performance.
Why is it important?
Well, stating the obvious, but when people are unemployed, their families lose wages and the country as a whole loses the contribution to its economy. In other words, you can say it is more like cascading effect that ripples through the economy when unemployed workers lose their purchasing power; it leads to the unemployment for other workers.
It is one of the key indicators that tell about the labor market conditions in the country.
Types of Unemployment
Well, there aren’t so many but yes, unemployment can be categorized into three different categories:
Structural Unemployment – A person who cannot find a job according to his or her skill set and there is a mismatch between his or her skills and the skills required by the company. Such unemployment is termed as structural unemployment.
Frictional Unemployment – Frictional unemployment is for the people who are frictionally unemployed. Means, a person who just left his or her current job in order to find a new one in different sector or firm.
Cyclical Unemployment – It is related to the business cycle of an economy. People who are unemployed in the recession period come under cyclical unemployment. Hence, when the economy rise, the no. of unemployed is lower.
How Is Unemployment Data Collected?
In the United States, the employment statistics are produced by the Bureau of Labor Statistics (BLS) under the department of labor when the Census Bureau – a part of the Department of Commerce perform a current population survey among some set of households and individuals excluding individuals under the age of 16, the Armed Forces, and people in mental health care facilities, correctional facilities, and other similar institutions.
The unemployment data collected under the conducted survey on individuals in the households are based on race, age, ethnicity, veteran status, and gender etc.
Final Thoughts: –
Unemployment rate helps in witnessing the unemployed person in an expanding economy and recession period. The unemployment data acts as one of the major factors to gauge not only the state of the economy but also the investor sentiment level in the economy.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.