Question

1. Why are unemployment rates usually tied directly to one's economy?

Answer 1

Answer: The unemployment rate is the number of unemployed divided by the number in the civilian labor force. Everyone without a job isn't necessarily unemployed, at least according to the Bureau of Labor Statistics. To be counted in the unemployment rate, you not only have to be without a job, you have to have actively looked for work in the past four weeks. If you were temporarily laid off and are waiting to be called back to that job, you're still counted. If you've given up looking for work, you're not counted in the unemployment rate.

Answer 2

The unemployment rate is an important indicator the Federal Reserve uses to determine the health of the economy when setting monetary policy.

Investors also use current unemployment statistics to look at which sectors are losing jobs faster. They can then determine which sector-specific mutual funds to sell.

While the unemployment rate is an important economic indicator, it doesn't capture the full scope of unemployment and underemployment. Former Fed Chair Janet Yellen noted the disparity between real unemployment and the unemployment rate in 2017 when she said, "A broader measure of unemployment isn't quite back to its pre-recession level. It includes people who would like a job but have been too discouraged to look for one and people who are working part-time but would rather be working full-time."