Unemployment refers to people who want a job but do not have one.

People without jobs who are not looking for a job are not considered to be unemployed.

Adults in the U.S. can be placed in one of three categories:

Employed - people who have jobs (regardless of how much or how little they work).

Unemployed - people who want a job but do not have one.
Not in the labor force - people who do not have jobs because they do not want one.

The first two categories comprise what is known as the labor force:

Labor force = employed + unemployed

Roughly two-thirds of the adult population in the U.S. are members of the labor force.

MEASURING UNEMPLOYMENT

Unemployment is measured by the Bureau of Labor Statistics (BLS)

The Bureau of Labor Statistics performs a telephone survey to estimate the number of people in each of the above employment classifications.

If the phone survey, the primary question asked is:Do you have a job?

If the respondent answers "YES", then that person is classified as "EMPLOYED."
If the respondent answers "NO", then the person is asked another major question:

Are you looking for a job?

If the respondent answers "YES", then that person is classified as "UNEMPLOYED."
If the respondent answers "NO", then the person is classified as "NOT IN THE LABOR FORCE."

From these estimates, the Bureau of Labor Statistics calculates the unemployment rate:

Unemployment Rate = Number of Unemployed / Size of the Labor Force

Unemployment Rate = Number of Unemployed / (Number of Employed + Number of Unemployed)

How the government measures unemployment - a very detailed explanation from the Bureau of Labor Statistics

UNEMPLOYMENT DATA

Yearly employment & unemployment data - since 1932 - national averages - from the Bureau of Labor Statistics (BLS)

Monthly unemployment data for the past 12 months - from the Bureau of Labor Statistics (BLS)

Other annual data on employment & earnings - from the Labor Force Statistics from the Current Population Survey by the Bureau of Labor Statistics (BLS)

LIMITATIONS OF UNEMPLOYMENT DATA

Unemployment data, like all data, have limitations. The statistics reported by the Bureau of Labor Statistics are not perfect measures of unemployment in the United States.

The limitations of unemployment data include:

1. Misleading answers by some of those surveyed -

Suppose you do not have a job and are collecting unemployment compensation from the government.
If someone from the government calls to ask "Do you have a job?" and "If you do not have a job, are you looking for one?", some people might say they are looking for work (a requirement for receiving benefits) even if they are not.
If adults without jobs are not looking for a job, technically they should not be classified as "unemployed." (Instead, they should be classified as "not in the labor force.")
Consequently, one could argue that the tendency for some people to misrepresent themselves in phone surveys causes the unemployment data reported by the government to OVERESTIMATE the actual amount of employment in the economy.

2. Underemployment - Some people counted as "employed" are "underemployed."

Suppose you are a single parent trying to support three children.
The only job you are able to find is a part-time job. (For example, 20 hours per week at McDonald's.)
Will a part-time job provide enough income for you to support your family?
People with part-time jobs generally are counted as "employed" even though may not be working as much as they want or need to work.
Consequently, one could argue that because unemployment statistics may not represent the fact that some people are not working as much as they want to work the employment data reported by the government may UNDERESTIMATE the actual amount of employment in the economy

3. Discouraged workers - Some people may become discouraged by their inability to find a job and stop looking for one, even though they want one.

If adults without jobs stop looking for one (and if they accurately represent themselves in the telephone surveys), they will be classified as "not in the labor force."
If they had not become so discouraged and continued to look for a job, they would be classified as "unemployed".
Consequently, one could argue that workers becoming discouraged may reduce the reported unemployment rate and UNDERESTIMATE the amount of unemployment in the economy if they were still looking for a job.

TYPES OF UNEMPLOYMENT

There are three major types of unemployment:

Frictional Unemployment - people who do not have jobs because they are new entrants into the labor force (and have not found a job yet) or people who are voluntarily between jobs.
Structural Unemployment - people who do not have jobs because their job skills do not match the skills required by available jobs.
Cyclical (Keynesian) Unemployment - people who do not have jobs because of downturns in the economy (i.e., business cycles).

STRATEGIES FOR REDUCING UNEMPLOYMENT

Most economists consider it natural (and perhaps even good) to have a certain amount of unemployment. Having a pool of people looking for jobs makes it easier for businesses to hire new workers. (If everyone who wanted a job had one, a business who wanted to hire more workers would have to lure them from other companies. This would probably mean the business would have to pay more to the workers. This might contribute to inflation.)

Consequently, attempts to reduce unemployment generally focus on cyclical or structural unemployment.

Structural unemployment might be reduced by:

education and job training programs which provide unemployed workers with skills to match those in available jobs.

Cyclical unemployment might be reduced by increasing aggregate demand in the economy.

Aggregate Demand is the sum of consumption spending, investment, governments expenditures, and net exports.
AD = C + I + G + X - M
The government could use fiscal policy to increase aggregate demand by increasing government expenditures or reducing taxes to encourage more investment and consumption.

IMPORTANT TERMS & CONCEPTS

Unemployment

Unemployment Rate

Labor Force

Underemployment

Discouraged Workers

Frictional Unemployment

Structural Unemployment

Cyclical Unemployment

Aggregate Demand

WHY SHOULD WE CARE ABOUT UNEMPLOYMENT?

Obviously if you do not have a job (and you want one), then you care about unemployment.

Yet, everyone should want us to have low unemployment.

With low unemployment, our economy has the ability to produce close to the maximum amount of output given our current resources and technology (i.e., close to the production possibilities frontier).
The greater our economy's output, the greater the potential to improve our standard of living (by having more output per person).
With high unemployment, our economy is not fully utilizing its resources (i.e., labor). Our economy is not producing as much output as it could. Consequently, there is not as much output per person as there could be if unemployment were low. Thus, our standard of living is not as high as it could be.

Keeping unemployment low is one of our macroeconomic objectives.

Macroeconomic policy goals include:

A Profile of the Working Poor, 1996 - from the Bureau of Labor Statistics, December 1997

E-mail Dr. Buck with your questions or comments.

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