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CIA figures for the latest world unemployment rates

Unemployment occurs when a person is available and willing to work but currently without work.[1] The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. The unemployment rate is also used in economic studies and economic indices such as the United States' Conference Board's Index of Leading Indicators as a measure of the state of macroeconomics.

Mainstream economics believes in the main that unemployment is inevitable, and a necessary evil to prevent inflation; this is disputed by some schools of heterodox economics. The causes of unemployment are disputed. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy (cyclical unemployment). Others point to structural problems and inefficiencies inherent in labour markets; structural unemployment involves mismatches between demand and supply of laborers with the necessary skillset, sometimes induced by disruptive technologies or globalisation. Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as unionization, minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed and the time it takes to find a new job (frictional unemployment). Behavioral economics highlights phenomena such as sticky wages and efficiency wages which may lead to unemployment.

There is also disagreement on how exactly to measure unemployment. Different countries experience different levels of unemployment; traditionally, the United States experiences lower unemployment levels than countries in the European Union,[2] although there is variant there, with countries like the UK and Denmark outperforming Italy and France and it also changes over time (e.g. the Great Depression) throughout economic cycles.

Unemployment rate as a percentage of the labor force in the United States according to the U.S. Bureau of Labor Statistics.

Contents

Involuntary unemployment

In The General Theory, Keynes argued that neo-classical economic theory did not apply during recessions because of oversaving and private investor timidity. In consequence, people could be thrown out of work involuntarily and not be able to find acceptable new employment.

This conflict between the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job-seeker to both consider new careers and relocation to another city.

Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies, such as the mega-cities of Africa and of India/Pakistan. In such societies, a suddenly unemployed person must meet their survival needs either by getting a new job at any price, becoming an entrepreneur, or joining the underground economy of the hustler.[3]

Involuntary unemployment is discussed from the narrative standpoint in stories by Ehrenreich, the narrative sociology of Bourdieu, and novels of social suffering such as John Steinbeck's The Grapes of Wrath.

Solutions

Societies try a number of different measures to get as many people as possible into work, and various societies have experienced close to full employment for extended periods, particularly during the Post-World War II economic expansion. The United Kingdom in the 1950s and 60s averaged 1.6% unemployment,[4] while in Australia the 1945 White Paper on Full Employment in Australia established a government policy of full employment, which policy lasted until the 1970s.

Mainstream economics since the 1970s believes however that attempts to reduce the level of unemployment beyond the Natural rate of unemployment will fail, resulting only in less output and more inflation.

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Demand side

Government employment of the unemployed is one solution, as in the Works Progress Administration.

A direct demand-side solution to unemployment is government-funded employment of the able-bodied poor. This was notably implemented in Britain from the 17th century until 1948 in the institution of the workhouse, which provided jobs for the unemployed with harsh conditions and poor wages to dissuade their use. A modern alternative is a job guarantee, where the government guarantees work at a living wage. Temporary measures can include public works programs such as the Works Progress Administration.

Government-funded employment is not widely advocated as a solution to unemployment, except in times of crisis; this is attributed to the perceived superiority of private sector employment over public sector employment.[5]

According to classical economic theory, markets reach equilibrium where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages. Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.

Supply side

However, the labour market is not efficient: it does not clear. Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions. Other supply side policies include education to make workers more attractive to employers.

Supply side reforms also increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.

Types of unemployment

Economists distinguish between various types of unemployment, including cyclical unemployment, frictional unemployment, structural unemployment and classical unemployment.[6] Some additional types of unemployment that are occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden unemployment. Real-world unemployment may combine different types. The magnitude of each of these is difficult to measure, partly because they overlap.

Though there have been several definitions of voluntary and involuntary unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual's decisions, whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior.

On the other hand, cyclical unemployment, structural unemployment, and classical unemployment, are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical (natural) unemployment may result from the legislative and economic choices made by labor unions and/or political parties. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment, for which macroeconomic forces lead to microeconomic unemployment.

Frictional unemployment

Frictional unemployment occurs when a worker moves from one job to another. The time period between jobs is considered frictional unemployment. Frictional unemployment is an example of a productive part of the economy, increasing both the worker's long term welfare and economic efficiency, and is also a type of voluntary unemployment.

Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment, which means that increases or decreases in unemployment are normally under-represented in the simple statistics.[7]

Classical unemployment

Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies.

Libertarian economists like F.A. Hayek argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those with jobs. For example, minimum wage laws raise the cost of labourers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed.[8][9] They believed that laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work.[9]

Some, such as Murray Rothbard,[10] suggest that even social taboos can prevent wages from falling to the market clearing level.

Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (e.g., abolishing minimum wages or employee protection), to make the labor market more like a financial market.[citation needed]

Cyclical or Keynesian unemployment

Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand in the economy. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. This is caused by a business cycle recession, and wages not falling to meet the equilibrium level. Cyclical unemployment rises during economic downturns and falls when the economy improves. Keynesians argue that this type of unemployment exists due to inadequate effective aggregate demand. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages do not fall to meet the equilibrium level, and mass unemployment results.

Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. For example, a surprise decrease in the money supply may shock participants in society.

In this case, the number of unemployed workers exceeds the number of job vacancies, so that if even all open jobs were filled, some workers would remain unemployed. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). Keynesian economists see it as possibly being solved by government deficit spending or by expansionary monetary policy, which aims to increase non-governmental spending by lowering interest rates.

In contrast, Austrian economists argue that government spending and policies are the root cause of economic cycles and cyclical unemployment and should be reformed or removed.

Classical economics rejects the conception of cyclical unemployment, seeing the attainment of full employment of resources and potential output as the normal state of affairs.[citation needed]

Structural unemployment

Structural unemployment occurs when the number of jobs in a labor market are unable to provide substantial jobs for everyone who wants one.[11]

Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers. Some economists see this scenario as occurring under British Prime Minister Margaret Thatcher during the 1970s and 1980s. The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence or "hysteresis."

Much technological unemployment (e.g. due to the replacement of workers by machines) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labor productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law, the demand side must grow sufficiently quickly to absorb not only the growing labor force but also the workers made redundant by increased labor productivity. Otherwise, we see a jobless recovery such as those seen in the United States in both the early 1990s and the early 2000s.

Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques.

Long-term unemployment

This is normally defined, for instance in European Union statistics, as unemployment lasting for longer than one year. It is an important indicator of social exclusion.

Hidden unemployment

Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmes) are not officially counted among the unemployed, even though they are not employed. The same applies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed" - those with part time or seasonal jobs who would rather have full time jobs. Because of hidden unemployment, official statistics often underestimate unemployment rates.

Full employment

In demand based theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, eventually the economy hits an "inflation barrier" imposed by the four other kinds of unemployment to the extent that they exist.

Some demand theory economists see the inflation barrier as corresponding to the natural rate of unemployment. The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labor market is in equilibrium and there is pressure for neither rising inflation rates nor falling inflation rates. More scientifically, this rate is sometimes referred to as the NAIRU or the Non-Accelerating Inflation Rate of Unemployment

No matter what its name, demand theory holds that this means that if the unemployment rate gets "too low," inflation will get worse and worse (accelerate) in the absence of wage and price controls (incomes policies). Others simply see the possibility of inflation rising as the unemployment rate falls. This is the discredited Phillips curve.

One of the major problems with the NAIRU theory is that no-one knows exactly what the NAIRU is (while it clearly changes over time). The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.

Another, normative, definition of full employment might be called the ideal unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment (excluding that part encouraging the McJobs management strategy) and would thus be very low. However, it would be impossible to attain this full-employment target using only demand-side Keynesian stimulus without getting below the NAIRU and suffering from accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.

To the extent that hidden unemployment exists, it implies that official unemployment statistics provide a poor guide to what unemployment rate coincides with "full employment".

Costs of unemployment

Individual

An 1837 political cartoon about unemployment in the United States.

Unemployed individuals are unable to earn money to meet financial obligations. Failure to pay mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction. Unemployment increases susceptibility to malnutrition, illness, mental stress, and loss of self-esteem, leading to depression. According to a study published in Social Indicator Research, even those who tend to be optimistic find it difficult to look on the bright side of things when unemployed. Using interviews and data from German participants aged 16 to 94 – including individuals coping with the stresses of real life and not just a volunteering student population – the researchers determined that even optimists struggled with being unemployed.[12]

Dr. M. Brenner conducted a study in 1979 on the "Influence of the Social Environment on Psychology." Brenner found that for every 10% increase in the number of unemployed there is an increase of 1.2% in total mortality, a 1.7% increase in cardiovascular disease, 1.3% more cirrhosis cases, 1.7% more suicides, 4.0% more arrests, and 0.8% more assaults reported to the police.[13] A more recent study by Christopher Ruhm[14] on the effect of recessions on health found that several measures of health actually improve during recessions. As for the impact of an economic downturn on crime, during the Great Depression the crime rate did not decrease. Because unemployment insurance in the U.S. typically does not replace 50% of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps or accumulating debt. Higher government transfer payments in the form of welfare and food stamps decrease spending on productive economic goods, decreasing GDP.[citation needed]

Some hold that many of the low-income jobs are not really a better option than unemployment with a welfare state (with its unemployment insurance benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most low-paying jobs is high) Unemployment insurance keeps an available supply of workers for the low-paying jobs, while the employers' choice of management techniques (low wages and benefits, few chances for advancement) is made with the existence of unemployment insurance in mind. This combination promotes the existence of one kind of unemployment, frictional unemployment.[citation needed]

Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. Unemployment can cause underemployment, and fear of job loss can spur psychological anxiety.

Social

An economy with high unemployment is not using all of the resources, e.g. labour, available to it. Since it is operating below its production possibility frontier, it could have higher output if all the workforce were usefully employed. However, there is a trade off between economic efficiency and unemployment: if the frictionally unemployed accepted the first job they were offered, they would be likely to be operating at below their skill level, reducing the economy's efficiency.[15]

It is estimated that, during the Great Depression, unemployment due to sticky wages cost the US economy about $4 trillion.[citation needed] This is many times larger than losses due to monopolies, cartels and tariffs.[citation needed]

During a long period of unemployment, workers can lose their skills, causing a loss of human capital. Being unemployed can also reduce the life expectancy of workers by about 7 years [16]

High unemployment can encourage xenophobia and protectionism as workers fear that foreigners are stealing their jobs.[citation needed] Efforts to preserve existing jobs of domestic and native workers include legal barriers against "outsiders" who want jobs, obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors.

Finally, a rising unemployment rate concentrates the oligopsony power of employers by increasing competition amongst workers for scarce employment opportunities.[citation needed].

Socio-political

High levels of unemployment can be causes of civil unrest, in some cases leading to revolution, and particularly totalitarianism. The fall of the Weimar Republic in 1933 and Adolf Hitler's rise to power, which culminated in World War II and the deaths of tens of millions and the destruction of much of the physical capital of Europe is attributed to the poor economic conditions in Germany at the time, notably a high unemployment rate[5] of above 20%; see Great Depression in Central Europe for details.

Note that the hyperinflation in the Weimar republic is not directly blamed for the Nazi rise – the Inflation in the Weimar Republic occurred primarily in the period 1921–23, which was contemporary with Hitler's Beer Hall Putsch of 1923, and is blamed for damaging the credibility of democratic institutions, but the Nazi party only assumed government in 1933, 10 years after the hyperinflation but in the midst of high unemployment.

Historical and contemporary unemployment

In the 16th century in England, no distinction was made between vagrants and the jobless; both were simply categorised as "sturdy beggars", to be punished and moved on.[17] The closing of the monasteries in the 1530s increased poverty as the church had helped the poor. In addition, there was a significant rise in enclosure during the Tudor period. Also the population was rising. Those unable to find work had a stark choice: starve or break the law. In 1535, a bill was drawn up calling for the creation of a system of public works to deal with the problem of unemployment, to be funded by a tax on income and capital. A law passed a year later allowed vagabonds to be whipped and hanged.[18] In 1547, a bill was passed that subjected vagrants to some of the more extreme provisions of the criminal law, namely two years servitude and branding with a "V" as the penalty for the first offence and death for the second.[19] During the reign of Henry VIII, as many as 72,000 people are estimated to have been executed.[20]

In the 1576 Act each town was required to provide work for the unemployed.[21] The Elizabethan Poor Law of 1601, one of the world's first government-sponsored welfare programs, made a clear distinction between those who were unable to work and those able-bodied people who refused employment.[22] Under the Poor Law systems of England and Wales, Scotland and Ireland a workhouse was a place where people who were unable to support themselves, could go to live and work.[23] In the early 1700s, there were roughly 10 million people living in England, and an estimated two million were, “vagrants, rogues, prostitutes, beggars or indigents.”[24] In 18th century England, half the population was at least occasionally dependent on charity for subsistence.[25] By 1776 some 1,912 parish and corporation workhouses had been established in England and Wales, housing almost 100,000 paupers.

The decade of the 1930s saw the Great Depression in the United States and many other countries. In 1929, the U.S. unemployment rate averaged 3%.[26] In 1933, 25% of all American workers and 37% of all nonfarm workers were unemployed,[27] with firms unwilling to employ workers at the abnormally high wage rates enforced while output fell.[28] In Cleveland, Ohio, the unemployment rate was 60%; in Toledo, Ohio, 80%.[29] Unemployment in Canada reached 27% at the depth of the Depression in 1933.[30] In some towns and cities in the north east of England, unemployment reached as high as 70%. In Germany the unemployment rate reached nearly 25% in 1932.[31] One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet Union.[32] There were two million homeless people migrating across the United States. One Arkansas man walked 900 miles looking for work.[29]

About 25 million people in the world's 30 richest countries will have lost their jobs between the end of 2007 and the end of 2010 as the economic downturn pushes most countries into recession.[33] In October 2009, the U.S. unemployment rate was 10.2%.[34] The youth unemployment rate was 18.5% in July 2009, the highest July rate since 1948.[35] 34.5% of young African American men were unemployed in October 2009.[36] Officially, Detroit’s unemployment rate is 27%, but Detroit News suggests that nearly half of this city’s working-age population may be unemployed.[37]

The official unemployment rate in the 16 EU countries that use the euro rose to 10% in December 2009.[38] Latvia has the highest unemployment rate in EU at 22.3% for November 2009.[39] Europe's young workers have been especially hard hit.[40] In November 2009, the unemployment rate in the EU27 for those aged 15–24 was 18.3%. For those under 25, the unemployment rate in Spain was 43.8%.[41]

Relationship to Economy

Unemployment is a struggle that is nationwide and affects many Americans all over the country. With a high number of people unemployed, less people are willing to go out and spend their money on unnecessary causes and become more frugal with their income. This affects the economy as a whole for the reason that, less people spending money will cause businesses to have a lower number of sales and hurt many major companies. While people are not working it decreases the amount of goods and services that can be produced which lowers the nations GDP. People will continue to lose their jobs until necessary changes are made to the economy. On the other hand when unemployment decreases, the GDP increases and the output of companies increase. This is a good thing unless it happens at too fast of a rate. If the GDP increases too quickly then the prices of products and services will raise leading to inflation. The economy tends to continue in an ongoing cycle of this and will continue in the future.

Unemployment rates in rural areas tend to be much higher than the unemployment rates in urban areas. Reasons for this are because there are not as much employment opportunities and when the economy struggles the smaller businesses that usually exist have a hard time to maintain their income. Another cause of unemployment in these smaller towns is the small businesses get overrun by major corporations and franchises that enter. The small business cannot compete with these businesses because they do not have the capital to contend with them. Unemployment is not good for the economy or the direct individual that is currently being affected by being unemployed. When a person looses their job they have a hard time to take care of themselves and their family. This is known to be harmful to the persons self esteem and in many cases can cause a person to feel unaccomplished and depressed.

Measurement

Though many people care about the number of unemployed, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labor force relative to the population. The unemployment rate is expressed as a percentage, and is calculated as follows:

\text{Unemployment rate}=\frac{\text{Unemployed workers}}{\text{Total labour force}}

As defined by the International Labour Organization, "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work.[42] Individuals who are actively seeking job placement must make the effort to: be in contact with an employer, have job interviews, contact job placement agencies, send out resumes, submit applications, respond to advertisements, or some other means of active job searching within the prior four weeks. Simply looking at advertisements and not responding will not count as actively seeking job placement. Since not all unemployment may be "open" and counted by government agencies, official statistics on unemployment may not be accurate[43].

The ILO describes 4 different methods to calculate the unemployment rate:[44]

  • Labour Force Sample Surveys are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender. This method is the most internationally comparable.
  • Official Estimates are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labour Surveys.
  • Social Insurance Statistics such as unemployment benefits, are computed base on the number of persons insured representing the total labour force and the number of persons who are insured that are collecting benefits. This method has been heavily criticized due to the expiration of benefits before the person finds work.
  • Employment Office Statistics are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the ILO definition.

European Union (Eurostat)

Eurostat, the statistical office of the European Union, defines unemployed as those persons age 15 to 74 who are not working, have looked for work in the last four weeks, and ready to start work within two weeks, which conform to ILO standards. Both the actual count and rate of unemployment are reported. Statistical data are available by member state, for the European Union as a whole (EU27) as well as for the euro area (EA16). Eurostat also includes a long-term unemployment rate. This is defined as part of the unemployed who have been unemployed for an excess of 1 year.

The main source used is the European Union Labour Force Survey (EU-LFS). The EU-LFS collects data on all member states each quarter. For monthly calculations, national surveys or national registers from employment offices are used in conjunction with quarterly EU-LFS data. The exact calculation for individual countries, resulting in harmonised monthly data, depend on the availability of the data.[45]

United States Bureau of Labor Statistics

Unemployment rate in the US by county in 2008.[46]      1.2–3%     3.1–4%     4.1–5%     5.1–6%     6.1–7%     7.1–8%     8.1–9%     9.1–10%     10.1–11%     11.1–13%     13.1–22.9%

The Bureau of Labor Statistics measures employment and unemployment (of those over 15 years of age) using two different labor force surveys[47] conducted by the United States Census Bureau (within the United States Department of Commerce) and/or the Bureau of Labor Statistics (within the United States Department of Labor) that gather employment statistics monthly. The Current Population Survey (CPS), or "Household Survey", conducts a survey based on a sample of 60,000 households. This Survey measures the unemployment rate based on the ILO definition.[48] The data are also used to calculate 5 alternate measures of unemployment as a percentage of the labor force based on different definitions noted as U1 through U6:[49]

  • U1: Percentage of labor force unemployed 15 weeks or longer.
  • U2: Percentage of labor force who lost jobs or completed temporary work.
  • U3: Official unemployment rate per ILO definition.
  • U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
  • U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
  • U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons (underemployment).

Note: "Marginally attached workers" are added to the total labor force for unemployment rate calculation for U4, U5, and U6. The BLS revised the CPS in 1994 and among the changes the measure representing the official unemployment rate was renamed U3 instead of U5.[50]

It should also be noted that studies have found that the U.S. unemployment rate would be at least 2% higher if prisoners and jail inmates were counted.[51][52]

The Current Employment Statistics survey (CES), or "Payroll Survey", conducts a survey based on a sample of 160,000 businesses and government agencies that represent 400,000 individual employers.[53] This survey measures only nonagricultural, nonsupervisory employment; thus, it does not calculate an unemployment rate, and it differs from the ILO unemployment rate definition. These two sources have different classification criteria, and usually produce differing results. Additional data are also available from the government, such as the unemployment insurance weekly claims report available from the Office of Workforce Security, within the U.S. Department of Labor Employment & Training Administration.[54]

These statistics are for the U.S. economy as a whole, hiding variations among groups. For January 2008 in the U.S. the unemployment rates were 4.4% for adult men, 4.2% for adult women, 4.4% for Caucasians, 6.3% for Hispanics or Latinos (all races), 9.2% for African Americans, 3.2% for Asian Americans, and 18.0% for teenagers.[53]

These percentages represent the usual rough ranking of these different groups' unemployment rates. The absolute numbers change over time and with the business cycle.[55]

The Bureau of Labor Statistics provides up-to-date numbers via a pdf linked here. The BLS also provides a readable concise current Employment Situation Summary, updated monthly.[56]

Unemployment rate (1890-2009)

Unemployment rate as a percentage of the civilian labor force in the United States according to the U.S. Bureau of Labor Statistics, Coen and Romer.

Notes: 1940–2009 data are from Bureau of Labor Statistics[57]. See also "Historical Comparability" under the Household Data section of the Explanatory Notes at http://www.bls.gov/cps/eetech_methods.pdf. 1890–1930 data are from Romer.[58] 1930–1940 data are from Coen.[59] Data prior to 1948 are for persons age 14 and over. Data beginning in 1948 are for persons age 16 and over. See image info for complete data.

Estimated U.S. Unemployment rate from 1800-1890 to Lebergott.

Notes: All data are estimates based on data compiled by Lebergott (1964). See image info for complete data.

Monthly unemployment rate in the UnitedStates, December 2007 to December 2009, according to the Bureau ofLabor Statistics.

Limitations of the unemployment definition

The unemployment rate may be different from the impact of the economy on people. The unemployment figures indicate how many are not working for pay but seeking employment for pay. It is only indirectly connected with the number of people who are actually not working at all or working without pay. Therefore, critics believe that current methods of measuring unemployment are inaccurate in terms of the impact of unemployment on people as these methods do not take into account the 1.5% of the available working population incarcerated in U.S. prisons (who may or may not be working while incarcerated), those who have lost their jobs and have become discouraged over time from actively looking for work, those who are self-employed or wish to become self-employed, such as tradesmen or building contractors or IT consultants, those who have retired before the official retirement age but would still like to work (involuntary early retirees), those on disability pensions who, while not possessing full health, still wish to work in occupations suitable for their medical conditions, those who work for payment for as little as one hour per week but would like to work full-time. These people are "involuntary part-time" workers, those who are underemployed, e.g., a computer programmer who is working in a retail store until he can find a permanent job, involuntary stay-at-home mothers who would prefer to work, and graduate and Professional school students who were unable to find worthwhile jobs after they graduated with their Bachelor's degrees.

On the other hand, the measures of employment and unemployment may be "too high". In some countries, the availability of unemployment benefits can inflate statistics since they give an incentive to register as unemployed. People who do not really seek work may choose to declare themselves unemployed so as to get benefits; people with undeclared paid occupations may try to get unemployment benefits in addition to the money they earn from their work. Conversely, the absence of any tangible benefit for registering as unemployed discourages people from registering.

However, in countries such as the United States, Canada, Mexico, Australia, Japan and the European Union, unemployment is measured using a sample survey (akin to a Gallup poll). According to the BLS, a number of Eastern European nations have instituted labor force surveys as well. The sample survey has its own problems because the total number of workers in the economy is calculated based on a sample rather than a census.

It is possible to be neither employed nor unemployed by ILO definitions, i.e., to be outside of the "labor force." These are people who have no job and are not looking for one. Many of these are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities. And of course some people simply elect not to work, preferring to be dependent on others for sustenance.

Typically, employment and the labor force include only work done for monetary gain. Hence, a homemaker is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. The latter can be important. In 1999, economists Lawrence F. Katz and Alan B. Krueger estimated that increased incarceration lowered measured unemployment in the United States by 0.17% between 1985 and the late 1990s. In particular, as of 2005, roughly 0.7% of the U.S. population is incarcerated (1.5% of the available working population).

Children, the elderly, and some individuals with disabilities are typically not counted as part of the labor force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labor market.

In the early stages of an economic boom, unemployment often rises. This is because people join the labor market (give up studying, start a job hunt, etc.) because of the improving job market, but until they have actually found a position they are counted as unemployed. Similarly, during a recession, the increase in the unemployment rate is moderated by people leaving the labor force or being otherwise discounted from the labor force, such as with the self-employed.

For the fourth quarter of 2004, according to OECD, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the U.S. and 7.4% in France. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the U.S. and 86.7% in France.

This example shows that the unemployment rate is 60% higher in France than in the U.S., yet more people in this demographic are working in France than in the U.S., which is counterintuitive if it is expected that the unemployment rate reflects the health of the labor market.[60][61].

Due to these deficiencies, many labor market economists prefer to look at a range of economic statistics such as labor market participation rate, the percentage of people aged between 15 and 64 who are currently employed or searching for employment, the total number of full-time jobs in an economy, the number of people seeking work as a raw number and not a percentage, and the total number of person-hours worked in a month compared to the total number of person-hours people would like to work. In particular the NBER does not use the unemployment rate but prefer various employment rates to date recessions [62].

Aiding the unemployed

Many countries have aids for the unemployed as part of the social welfare. These unemployment benefits include unemployment insurance, welfare, unemployment compensation and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a job.

In the U.S. the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, etc.) and usually compensates for one-third of one's previous income. To qualify, one must reside in their respective state for at least a year and, of course, work. The system was established by the Social Security Act of 1935. While 90% of citizens are covered on paper, only 40% could actually receive benefits.[citation needed] In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.

Unemployed man looking for a job in 1928
Families on relief 1935–41
Relief cases 1936–1941
Monthly average in 1,000
Year 1936 1937 1938 1939 1940 1941
Workers employed
WPA 1,995 2,227 1,932 2,911 1,971 1,638
CCC and NYA 712 801 643 793 877 919
Other federal work projects 554 663 452 488 468 681
Public assistance cases
Social security programs 602 1,306 1,852 2,132 2,308 2,517
General relief 2,946 1,484 1,611 1,647 1,570 1,206
Total families helped 5,886 5,660 5,474 6,751 5,860 5,167
Unemployed workers (Bur Lab Stat) 9,030 7,700 10,390 9,480 8,120 5,560
Coverage (cases/unemployed) 65% 74% 53% 71% 72% 93%

source: Donald S. Howard, WPA and Federal Relief Policy. 1943 p 34.

Year Unemployment (% labor force)
1933 24.9
1934 21.7
1935 20.1
1936 16.9
1937 14.3
1938 19.0
1939 17.2
1940 14.6
1941 9.9
1942 4.7
1943 1.9
1944 1.2
1945 1.9

source: Historical Statistics US (1976) series D-86

See also welfare and training.

Benefits

Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert inflation, which is argued to have damaging effects, by providing (in Marxian terms) a reserve army of labour, which keeps wages in check.

However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment.[citation needed]

The inflation-fighting benefits to the entire economy arising from a presumed optimum level of unemployment has been studied extensively. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve, or to decelerate inflation, following the NAIRU/natural rate of unemployment theory, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs.

As in the Marxian theory of unemployment, special interests may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit. According to this theory, unemployment may promote general labor productivity and profitability by increasing employers' monopsony-like power (and profits).

Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment—it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption.[63] If so the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.

Some critics of the "culture of work" such as anarchist Bob Black see employment as overemphasized culturally in modern countries. Such critics often propose quitting jobs when possible, working less, reassessing the cost of living to this end, creation of jobs which are "fun" as opposed to "work," and creating cultural norms where work is seen as unhealthy. These people advocate an "anti-work" ethic for life.[citation needed]

From a spiritual perspective Dr. Jennifer Howard believes there are may be benefits from unemployment. "The good news is that after the initial fear, we might find that the job loss is an opportunity for growing into something better suited for us and in turn help us feel more successful in our life. The important thing is to be kind to ourselves by eating and sleeping well, exercising, journaling and taking time to go inside ourselves to reflect on our various highly charged thoughts and feelings. Now that we have been given some time, we could take advantage of looking more closely at what is important to us. Remember, any difficulty can be taken as an opportunity for great healing. Part of being happy, productive and mature is by learning to take life as it comes and making the best with what we have." Howard, Dr. Jennifer. "What is Personal Development." Dealing With Your Job Loss (2009) Web.23 Jun 2009.

See also

References

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