The unemployment rate is a key measure of the health of the economy and the job market. It’s the share of people in the labour force who are unemployed and looking for work, and it excludes those who have dropped out of the workforce or who are retired. The Bureau of Labor Statistics calculates the unemployment rate by using a monthly survey that includes everyone who is employed, working part time and looking for a job.
Unemployment generally rises during economic downturns as businesses destroy jobs in response to weaker demand, such as landscapers laid off by a sharp drop in housing construction or printers cut back on the production of catalogues and flyers as more consumers do their shopping online. But during periods of economic growth, these destroyed jobs are typically offset by the creation of new ones. Over the long term, that creates what economists call a natural rate of unemployment for an economy.
However, the underlying forces that drive the natural unemployment rate may not be the same in different countries or even within one country over the course of decades. In particular, differences in labour market institutions may play a role. These include unions, which give workers a strong bargaining position in negotiations with employers; and regulations that can make it harder to fire workers or require notice before they can be fired.
Other influences may also affect the natural unemployment rate, such as structural factors that are independent of the business cycle. These could include changes in the availability of jobs (such as more opportunities to work part time or the expansion of the gig economy), or trends that reduce the incentive for people to look for employment, such as the aging of the baby boom generation.