The unemployment rate is an important measure of the health of a country’s labor market. It shows how many people are unable to find work and is the lagging indicator of economic events such as recessions. It also influences the Federal Reserve’s monetary policy, and is used by employers to determine whether to hire employees. Investors also use it to gauge the health of a country’s economy and to decide where to invest their money.
Nevertheless, the unemployment rate is not a perfect measure of joblessness. For example, it does not count people who have stopped looking for work or those working in jobs below their skill levels. It also does not include people who are able to work but choose not to because of family or personal circumstances, such as caregiving for children or elderly parents. And finally, it does not include people who have given up on their job search because they believe there is no hope of finding employment.
The official unemployment statistics reported each month by the Bureau of Labor Statistics are based on a sample survey called the Current Population Survey (CPS). This monthly survey is carried out by interviewing a large sample of households and is designed to be representative of the entire population. Interviewers ask respondents a series of questions about their recent activities, and based on the answers and definitions programmed into the computer, they are classified as employed, unemployed, or not in the labor force.