In economics, a person who is able and willing to work at a prevailing wage rate yet is unable to find a paying job is considered to be unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers actually seeking work is notoriously difficult. There are several different methods for measuring the number of unemployed workers, each with its own biases, making comparisons between methods difficult.
The history of unemployment is the history of industrialization. It was not considered an issue in rural areas, despite the "disguised unemployment" of rural laborers having little to do, especially in conditions of overpopulation.
The terms unemployment and unemployed are sometimes used to refer to other inputs to production that are not being fully used — for example, unemployed capital goods.
Some of the likely costs of unemployment for society include increased poverty, crime, political instability, mental health problems, and diminished issue in economics. A low rate of unemployment usually helps prevent mass poverty and violence.
Some hold that many of the low-income jobs (such as McJobs) aren't 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 McJobs is high, in excess of 30%/year.) Unemployment insurance keeps an available supply of workers for the McJobs, 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.
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. That is, unemployment can cause underemployment (definition 1). This is one of the economic arguments in favor of having unemployment insurance.
This feared cost of job loss can spur psychological anxiety, weaken labor unions and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet protectionism. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors. The impact of unemployment on the employed is related to the idea of Marxian unemployment. Finally, the existence of significant unemployment raises the monopsony power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood.
Finally, high unemployment implies low real Gross Domestic Product: first, we are not using our resources as completely as possible and are thus wasting our opportunities to produce goods and services. Much unemployment — called deficient-demand or cyclical unemployment — thus represents a profound form of inefficiency, sometimes called "Keynesian inefficiency." (However, this loss of production might instead be caused by classical unemployment or Marxian unemployment, which reduce potential output by restricting supply.) Okun's Law tells us that for the U.S., the economy misses out on about two percent of its potential output for each one percentage point of unemployment above the "full employment" unemployment rate or NAIRU (see below). Alternatively, this "law" says that as unemployment rises by one percentage point, say from 5% to 6% of the civilian labour force, the percentage of potential output that could have been produced but was not rises by about two points.
As in the Marxian theory of unemployment, special interests may also benefit: employers often like having their employees in fear of losing their jobs, and thus working hard, keeping their wage demands low, etc. As noted, unemployment may increase employers' monopsony power. Unemployment may thus promote labor productivity and profitability.
Some say that slow economic growth and the resulting unemployment are actually good, since the constantly needed growth of the GDP cannot be sustained forever, given resource constraints and environmental impacts. But others ask if it is fair to burden the unemployed (usually those at the bottom of the economic heap) with the costs of limiting the use of resources and the abuse of the environment. This suggests that we should seek ways to improve the efficiency of our resource management and environmental stewardship to attain growth and low unemployment in order to make sure that the burdens are distributed fairly.
There is considerable debate amongst economists as to what the main causes of unemployment are.
Under both ancient and modern systems of slave-labor, slave-owners never let their property be unemployed for long. (If anything, they would sell the unneeded laborer.) Planned economies (often called "communist countries") such as the old Soviet Union or today's Cuba typically provide occupation for everyone, using substantial overstaffing if necessary. (This is called "hidden unemployment," which is sometimes seen as a kind of underemployment, definition 3.) Workers' cooperatives — such as those producing plywood in the U.S. Pacific Northwest — do not let their members become unemployed unless the co-op itself goes bankrupt.
Since not all unemployment may be "open" and counted by government agencies, official unemployment may be very low even under capitalism. Most poorer capitalist countries lack a modern welfare state and unemployment insurance so that it is very difficult to afford being unemployed for very long: they often end up taking jobs below their skill levels. Those who might be counted as "unemployed" in the rich countries end up instead being underemployed (definition 1) and not counted.
Others argue that unemployment actually increases the more the government intervenes into the economy. For example, minimum wages raise costs of doing business and businesses respond by laying off workers. Laws restricting layoffs make businesses less likely to hire in the first place leaving many young people unemployed and unable to find work.
The results of both actions lead to less productivity and higher costs to society as a whole. The results lead to not just higher unemployment but increased poverty. This is why the less market oriented countries of Europe often sustain substantially high unemployment rates in comparison to the United States; that is, government induced employment through policies designed to ?protect? the worker. The welfare state then responds with various benefits that are paid for by the middle and upper class which reduces their ability to consume and their incentive to work hard and innovate. Again, society gets worse off. Economists like Ludwig Von Mises, Milton Friedman, Friedrich Von Hayek, and many others not only believe that the welfare of society decreases with this kind of intervention but that these economic policies are not sustainable.
Though there have been several definitions of voluntary (and involuntary) unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is blamed on the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure and the level of aggregate demand) in which individuals operate. (As is usual in economics, the sociological or social-psychological factors that help determine individual choices are ignored here.) 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, classical unemployment, and Marxian unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or political parties aiming to help workers. 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 and Marxian unemployment, for which macroeconomic forces lead to microeconomic unemployment. For more details, see unemployment types.
For a more detailed discussion, see the entry on types of unemployment.
The BLS counts employment and unemployment (of those over 16 years of age) using a sample survey of households.* In BLS definitions, people are considered employed if they did any work at all for pay or profit during the survey week. This includes not only regular full-time year-round employment but also all part-time and temporary work. Workers are also counted as "employed" if they have a job at which they did not work during the survey week because they were:
Typically, employment and the labor force include only work done for economic 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 %age points between 1985 and the late 1990s. In particular, as of 2005, roughly 0.7% of the US population is incarcerated.
On the other hand, individuals are classified as "unemployed" if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work. The unemployed includes all individuals who were not working for pay but were waiting to be called back to a job from which they had been temporarily laid off.
Finally, it is possible to be neither employed nor unemployed by BLS 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.
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 rise. 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.
Note: as of March 1st, 2005 unemployment statistics will be derived from three sources. These sources include the Current Population Survey, a statewide survey of businesses known as the Current Employment Statistics Survey, and state unemployment insurance claims.
The unemployment rate may be different from the impact of the economy on people. First, 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. Second, in the United States those who work as little as one hour a week for payment are considered employed, even if they wish to work more. 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:
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. Homemakers and other 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 estimated based on a sample rather than a census. So many economists look to the survey of employers (in U.S.) to get a better estimate of the number of jobs created or destroyed.
Due to these deficiencies, many labor market economists prefer to look at a range of economic statistics such as:
These two sources have different classification criteria, and usually produce differing results. As noted, most economists these days see the CES as a more accurate estimate of the state of the job market. Because the CES only surveys employers, it does not produce an unemployment rate statistic.
Though many people care about the number of unemployed (8.0 million in the U.S. in December 2004), economists typically focus on the unemployment rate (4.7% in March 2006). This corrects for the normal increase in the number of people working for pay or seeking work due to population increases and increases in the paid labor force relative to the population — and thus the normal increase in the number of unemployed workers.
It is important to note that these statistics are for the U.S. economy as a whole, hiding variations among groups. For December 2004 and May 2005 in the U.S., respectively the unemployment rates for the major worker groups were as follows:
These percentages represent the usual rough ranking of these different groups' unemployment rates, though the absolute numbers normally change over time with the business cycle. They come from the Bureau of Labor Statistics. (Clicking on this link will lead to a pdf file with up-to-date numbers.)
In the U.S., the unemployement 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. While 90% of citizens are covered on paper, only 40% could actually receive benefits as unemployment is based on an antiquated system created in the Social Security Act of 1935. 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. To calculate the unemployment insurance benefits you might receive, see the page at the Economic Policy Institute.
"On January 1 there were 20 million persons on relief in the United States. Of these, 8.3 million were children under sixteen years of age; 3.8 million were persons who, though between the ages of sixteen and sixty-five were not working nor seeking work. These included housewives, students in school, and incapacitated persons. Another 750,000 were persons sixty- five years of age or over. Thus, of the total of 20 million persons then receiving relief, 12.85 million were not considered eligible for employment. This left a total of 7.15 million presumably employable persons between the ages of sixteen and sixty-five inclusive. Of these, however, 1.65 million were said to be farm operators or persons who had some non-relief employment, while another 350,000 were, despite the fact that they were already employed or seeking work, considered incapacitated. Deducting this two million from the total of 7.15 million, there remained 5.15 million persons sixteen to sixty-five years of age, unemployed, looking for work, and able to work. Because of the assumption that only one worker per family would be permitted to work under the proposed program, this total of 5.15 million was further reduced by 1.6 million--the estimated number of workers who were members of families which included two or more employable persons. Thus, there remained a net total of 3.55 million workers in as many households for whom jobs were to be provided." p 562, paraphrasing Hopkins
The WPA did not quite reach 3.5 million--its maximum was 3.3 million in November 1938. Worker pay was based on three factors: the region of the country, the degree of urbanization and the individual's skill. It varied from $19/month to $94/month. The goal was to pay the local prevailing wage, but to limit a person to 30 hours or less a week of work. About 75 percent of WPA employment and 75 percent of WPA expenditures went to public infrastructure, such as highways, airports, parks and libraries.
The WPA had numerous critics who said that political considerations helped decide which states received the most funding. Civil rights leaders often complained that African Americans were proportionally underrepresented. In New Jersey, they argued, "In spite of the fact that Negroes indubitably constitute more than 20 per cent of the State's unemployed, they composed 15.9 per cent of those assigned to W.P.A. jobs during 1937." 287 Nationwide in late 1937, 15.2% were African American. The NAACP magazine Opportunity hailed the WPA: 1939, p. 34. in Howard 295
It is to the eternal credit of the administrative officers of the WPA that discrimination on various projects because of race has been kept to a minimum and that in almost every community Negroes have been given a chance to participate in the work program. In the South, as might have been expected, this participation has been limited, and differential wages on the basis of race have been more or less effectively established; but in the northern communities, particularly in the urban centers, the Negro has been afforded his first real opportunity for employment in white-collar occupations
When unemployment disappeared in World War II, and almost no one was eligible, Congress shut down the WPA in late 1943.
The statistics show:
| Relief Cases 1936-1941 | ||||||
| monthly average in 1,000 | ||||||
| 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 |
| 5,886 | 5,660 | 5,474 | 6,751 | 5,860 | 5,167 | |
| Total families helped | ||||||
| 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% |
| Uemployment | ||
| % 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 | |
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