Unemployment is the condition of a person who is out of work and actively looking for a job. Unemployment contributes to numerous problems for jobless individuals, their families, and society as a whole. For the individual, it causes a loss of income and, in many cases, emotional distress or a loss of self-respect. For society, it indicates lost production and may lead to increased levels of homelessness, criminal activity, and antisocial behavior. Unemployment is commonly measured by a statistic called an unemployment rate. An unemployment rate is the percentage of jobless individuals in a community’s total labor force—that is, in the segment of the population that is willing and able to be employed. Business executives, economists, and government officials use unemployment rates as indications of economic health.
Before the 1900’s, people commonly believed that unemployment resulted from laziness or other flaws in character. Today, most people realize that women and men may be out of work through no fault of their own.
How people become unemployed
People become unemployed in a number of ways. Many people are dismissed from their jobs, by either being laid off or being fired. Workers may be laid off if companies reorganize or close down, or if employers need to reduce payroll costs. Layoffs are common during economic downturns, and they are sometimes temporary in nature. Firings are usually permanent, and they are typically the result of employee misconduct, poor job performance, or disagreements in the workplace. Workers who have been fired usually remain unemployed longer than workers who have been laid off.
In many cases, workers leave their jobs voluntarily. Some leave because they are unhappy with their wages or working conditions, or because they feel there are better opportunities elsewhere. However, most people who leave jobs voluntarily do not become unemployed, because they arrange for new jobs before leaving.
Some unemployed individuals are new to the labor force and have not yet found jobs. People entering the labor force for the first time often include graduating students, students searching for work while still attending school, and former homemakers seeking their first jobs. Some people who have left the labor force—possibly to pursue advanced education or to care for children—become unemployed as they reenter the labor force at a later date.
Types of unemployment
Many economists classify unemployment into three categories, according to the basic causes. These categories are (1) frictional, (2) structural, and (3) cyclical.
Frictional unemployment
exists in efficiently operating labor markets, even when jobs are plentiful. The frictionally unemployed category includes people who are between jobs, because they either quit their old jobs or were laid off or fired. It also includes individuals entering the labor force who have started searching but have not yet found jobs. Such unemployment arises because of regular changes in a free market economy and the time required for people to find new jobs.
Seasonal unemployment,
a type of frictional unemployment, occurs in industries that lay off workers during certain seasons each year. In some areas, for instance, construction workers are often between jobs during periods of severe weather, and workers in resort areas are often out of work during the off-season.
Structural unemployment
exists when there is a mismatch between the individuals seeking work and the jobs that are available. For example, coal miners may be seeking work at the same time there is a shortage of salespeople. Structural unemployment also includes people in the wrong location to fill available jobs. There may be layoffs in one region while there are numerous job openings in another.
Structural unemployment may also result from technological change and the development of new products, machinery, and manufacturing methods. Such developments may lead to increased demand for new and different skills and reduced demand for traditional skills. For example, the percentage of clerical and professional workers in the labor force has risen sharply since 1900. Meanwhile, the number of jobs in coal mining, railroading, and other traditional industries has declined. Structural unemployment caused by technological change is sometimes called technological unemployment.
Cyclical unemployment,
sometimes called deficient demand unemployment, results from downturns in the economy. When many goods and services remain unsold, many industries reduce production and lay off employees. They often do this instead of attempting to maintain existing production levels and reducing prices and wages. An especially severe period of high cyclical unemployment occurred during the Great Depression, a worldwide economic slump of the 1930’s.
Government and unemployment
Governments throughout the world have attempted a variety of strategies to control unemployment. They have also established programs and policies that seek to address the societal problems associated with joblessness. Studies of unemployment greatly influence social and economic policies at various levels of government.
Measuring unemployment.
Specific methods for measuring unemployment vary from country to country. Unemployment totals generally do not include people who are not seeking work because of age, illness, or a mental or physical disability. Nor do they include people who are not seeking work because they are attending school, homemaking, uninterested in working, or discouraged by their job search. Such people are instead classified as out of the labor force rather than unemployed.
In the United States, the Census Bureau in the U.S. Department of Commerce collects and tabulates unemployment statistics. The Bureau of Labor Statistics in the U.S. Department of Labor then analyzes and publishes the data. The Bureau of Labor Statistics reports the unemployment rate for each month. The annual U.S. unemployment rate represents the average of the monthly figures for a year. Statistics Canada, the statistical agency of the Canadian government, compiles unemployment statistics in Canada. National Statistics performs similar functions in the United Kingdom, and the Australian Bureau of Statistics does so in Australia. The International Labour Organization (ILO), a specialized agency of the United Nations (UN), regularly reports world employment and unemployment statistics.
Programs and policies.
Many governments operate unemployment insurance (UI) programs. Payments from unemployment insurance help ease the loss of income for people who have lost their jobs and are looking for work. Numerous industrial nations-including the United States, Canada, and the United Kingdom-have government-sponsored unemployment insurance systems.
Certain types of government policies seek to address specific categories of unemployment. To combat frictional unemployment, for example, many governments have public employment agencies that inform unemployed workers of suitable job openings. To address structural unemployment, some governments offer programs that train people in skills required for available jobs. Other programs rehabilitate workers who need special assistance.
Governments may also seek to control unemployment through fiscal policy and monetary policy. Fiscal policy refers to a government’s taxing and spending programs. Monetary policy involves decisions that influence the money supply, the availability of loans, and interest rates. Fiscal and monetary policies can help create new jobs by making more money available for employers to hire workers. However, such efforts may also lead to budget deficits and severe inflation (price increases).
Some people have suggested that the government should become the employer of last resort if industry cannot employ the nation’s total labor force. The U.S. government experimented with the idea in the 1930’s, when government agencies, such as the Federal Emergency Relief Administration (FERA) and the Works Progress Administration (WPA), provided temporary work relief jobs for the unemployed. But since the end of the Depression, such policies have received little support.
Unemployment levels throughout the world
Unemployment rates vary greatly from country to country. The rates also vary for different groups within a country. For instance, in many countries, unemployment rates tend to be significantly higher for teenage workers than for adults. Similarly, unskilled people generally experience significantly higher levels of unemployment than highly trained workers. In some countries, unemployment rates are higher for certain racial and ethnic minority groups.
Countries throughout the world experienced historic levels of unemployment during the Great Depression. In Canada, Germany, and the United Kingdom, unemployed people accounted for about 13 to 27 percent of the labor force. In the United States, the unemployment rate reached nearly 25 percent. In most countries, unemployment rates decreased significantly after 1940.
The unemployment rate in the United States has generally ranged from about 3 to 8 percent from the early 1990’s to the early 2020’s. Unemployment rates in Australia, Canada, the United Kingdom, and most western European countries generally ranged from 4 to 10 percent from about 2000 to the early 2020’s. The global rate for unemployment began to increase in 2008 because of an economic downturn that began with a credit crisis in international banking and finance.
Some countries have traditionally maintained low levels of unemployment. Unemployment rates in Norway and Switzerland, for instance, were less than 6 percent from about 2000 to the early 2020’s. Japan has also had traditionally low unemployment rates.
Unemployment rates rose dramatically in many countries during the COVID-19 pandemic, which began in 2019. COVID-19 is a respiratory disease that originated in China and quickly spread throughout the world. National and local authorities canceled public events, closed places of business and schools, restricted travel, and urged people to stay at home to control the spread of the disease. Such measures put countless people out of work. Some governments took actions to ease the economic hardship caused by COVID-19. For example, they raised unemployment insurance payments, subsidized wages, and made lump sum payments to individuals.
