The Significance of Unemployment Rate

When we divide the number of unemployed workers with the number of workers in the labor force, we will be able to get the unemployment rate of a country. It is one of the indicators looked at by economists whenever a nation is suffering from recession. Recession on the other hand is a condition where a country experiences 2 more consecutive quarters of reducing expenditures in goods and services from consumers. In economics, this is more known as the Gross Domestic Product (GDP). This is a major marker for a country’s current economic condition. Whenever a country’s GDP is falling economists look at the most common concerns associated with this circumstance, and one of them is unemployment. Why is unemployment rate very important? Here are the reasons why:

1. The figures needed to measure unemployment are labor force and unemployed workers. The number of unemployed people is divided over the number of the labor force (number of employed plus unemployed workers) and multiplied to 100 to get the rate of unemployment. Arriving at the figures for employed and unemployed is made through a series of comprehensive surveys by the Bureau of Labor Statistics on a monthly basis. A closer look at the unemployment rate helps economists evaluate the economic direction of a country.

2. Whenever the unemployment rate goes beyond 6%, it becomes a cause for concern. It is an indicator that perhaps more and more people are losing their buying powers to pay for both their needs and wants. Perhaps the reason for the decreasing buying power is the lack of jobs among many households. When people have no jobs and cannot buy more than what they need, then the business of suppliers and manufacturers of basic commodities will be affected as well. If the effect becomes tremendous, then the overall economic growth of the country will suffer as well.