Why do millions of people lose their jobs at the same time during a recession?
Background
The unemployment rate counts people without a job who are available for work and actively searching. That definition is narrow on purpose. It produces a comparable headline measure, but it also leaves out part of the stress economists care about.
A labor market can look better than it feels if workers stop searching, accept part-time hours they did not want, or cycle in and out of employment too quickly to show up in one clean statistic.
What it covers
The unemployment rate measures the share of people who are actively looking for work and cannot find it. It is not a count of everyone who wants a job -- discouraged workers who stopped searching, part-time workers who want full-time hours, and people marginally attached to the labor force all fall outside the headline number.
That is why economists watch several measures at once. U-3 is the headline rate. U-6 is broader and includes underemployment. Neither captures the full picture alone.
Unemployment matters for more than welfare: prolonged unemployment erodes skills, reduces lifetime earnings, and weakens the tax base that funds everything else.
Open question
If unemployment is high, is the problem weak demand, a damaged labor market, a mismatch between workers and jobs, or some combination of all three?