When a country’s unemployment rate goes up, it usually signals that the economy is in trouble. High unemployment reduces consumer spending, a major driver of economic growth, and can lead to companies cutting back on production and laying off workers. In turn, this can lead to more layoffs and a vicious cycle of economic contraction. High unemployment can also hurt local communities by reducing the number of people earning wages, increasing poverty levels and eroding social cohesion.
Fortunately, most countries now report their unemployment data according to an established international standard, making apples-to-apples comparisons easier. But unemployment rates can still vary widely, and it is important to understand how a nation’s data are calculated so that you can interpret them correctly.
The main measure of unemployment is the jobless rate, which is the percentage of people without a job who are actively seeking one. It excludes people who have given up looking for work, as well as those who are not available to work (e.g. students and homemakers). It is not a perfect measure, but it is the best we have for capturing current employment trends.
Another way of measuring unemployment is through the underemployment rate, which includes people who are employed but would like to work more hours. It is a more accurate picture of what’s happening in the labor market because it accounts for factors that are not directly related to the business cycle, such as people nearing retirement who decide to work for longer and people who want full-time jobs but cannot find them.
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