Unemployment: A Closer Look

Unemployment. We hear about it almost every day. In light of the federal government shutdown, discussion of unemployment in the United States is more prevalent than ever before. This article will examine the topic of unemployment from an economic standpoint.

What does it mean to be unemployed? The truth is more complicated than one might think. To be considered unemployed, a worker must be willing and able to work but can’t find a job. There is, however, one major caveat – people who have been looking for a job unsuccessfully for more than 6 months do not count as unemployed. Instead, they merit the term “disillusioned” worker. Therefore, official unemployment rates often understate the true extent of the problem.

Broadly speaking, unemployment can be divided into two main categories – natural and unnatural.

Natural unemployment is necessary in a dynamic and growing economy. In the United States, the natural rate of unemployment ranges between 4.5 and 5 percent. Natural unemployment can be subdivided into three subtypes:

  • Structural unemployment is unemployment caused by changes in demand or technology. If a worker loses his/her job because a robot can do it more efficiently or at a lower cost, they are considered structurally unemployed.
  • Frictional unemployment occurs when individuals are in the transitory period between jobs.
  • Seasonal unemployment affects workers whose jobs are time-sensitive. For example, grain harvesters are seasonally unemployed when the harvest season ends.

In contrast to natural unemployment, unnatural unemployment is not a requisite of a healthy economy. Unnatural unemployment is also referred to as Cyclical unemployment, because it takes place during recessionary periods. Although most economies experience long term economic growth over time, such growth is far from steady and gradual. In fact, economies oscillate between periods of GDP growth (booms) and GDP declines (busts). When GDP is on the decline, the rate of Cyclical unemployment or Unnatural unemployment increases.

Phases of the Business Cycle

Furthermore, “institutionalized” citizens such as criminals & students are not considered unemployed even when they lack a job, since they are not included in the official labor force.

Source: https://www.thecanadianencyclopedia.ca/en/article/business-cycles

Examining unemployment from an economic perspective reveals that the subject is more nuanced than it might appear. To truly combat unemployment, employing the economic perspective may be helpful.

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