Unemployment is defined as people who are willing and able to work, but do not currently have a job.
To be counted as employed, a person must be working, even if only part-time, or be absent from work due to illness, vacation, or a labor dispute.
Because part-time jobs are counted as employed, people who take part-time jobs while looking for full-time employment are classified as employed.
To be counted as unemployed, a person cannot have a job of any kind and must be actively looking for work.
Because of the benefits, people will sometimes declare themselves as unemployed who are not actually looking for work.
All persons over the age of 16 that do not have a job and are not seeking one are declared as “not in the labor force.”
As you can see, the employment numbers can be a bit misleading, because some people are declared employed who are still looking for full-time work, some people are declared unemployed who are not really seeking work but still want to collect the benefits, and some people are declared not in the labor force because there are no jobs available so they simply gave up looking for work.
Unemployment statistics are reported by the Department of Labor. There are several unemployment reports from the Department of Labor as well as other sources that we will cover in the section on economic data.
Frictional unemployment. People are frictionally unemployed when they are in between jobs or seeking work for the first time.
Because there will always be a certain number of people changing jobs, or a certain number of people seeking work for the first time, there will always be a certain level of frictional unemployment.
Therefore, full employment means there is still an acceptable level of unemployment in the country. This is sometimes referred to as an “ideal employment level.”
There is some debate on the acceptable level of employment to be considered full employment.
For example, Lord William Beveridge defined full employment as where the number of unemployed workers equal the number of job vacancies available.
However, most economists agree that a level of unemployment around 4 to 5 percent should be considered full employment.
Cyclical unemployment. Cyclical unemployment, also known as demand-deficient unemployment, comes from fluctuations in the business cycle.
The business cycle is named for the stages an economy goes through. A business cycle generally has four parts: growth, prosperity, decline, and recession.
Eventually, a recession will always be followed by expansion. And expansion will always be followed by recession.
The full loop of going from recession to growth and back to recession again is called the business cycle. Cyclical unemployment comes from the periods of decline and recession in the business cycle.
Structural unemployment. Structural unemployment happens when unemployed workers are unable to fill job openings due to skill mis-match or geographical mis-match.
Structural unemployment due to skill mismatch occurs when available workers do not have the skills needed to perform available jobs.
Structural unemployment due to geographical mismatch occurs when available jobs are not located near available workers.
Seasonal unemployment. Seasonal unemployment occurs when people have jobs for part of the year, but are unemployed part of the year due to seasonal factors.
An example might be construction or farm workers who are out of work because of cold weather.
There will always be some unemployment because there will always be a certain number of people in the process of changing jobs. There will always be a certain number of people unemployed due to frictional unemployment.
However, there are a certain number of things that can be done to minimize unemployment in general. One of these tools is fiscal policy.
Fiscal policy is defined as using the government’s taxing and spending powers to influence the economy.
Fiscal policy can be used to combat cyclical unemployment, which is caused by a decrease in total spending from the country being in, or heading into, a recession.
Because less things are being purchased, workers get laid off due to decreases in production.
If spending can be increased, these workers would get called back to work to produce the additional needed goods.
One way fiscal policy can be used to create jobs would be to cut taxes. This means people would have more money left over to spend, and companies would have more money to hire new employees.
Another example of fiscal policy that could be used is if the government started a public works program to build new buildings or bridges.
Another way the government can fight unemployment is using monetary policy. Monetary policy involves changing interest rates to affect the economy.
By lowering rates, money now costs less to borrow, making it cheaper for companies to expand, and cheaper for consumers to buy goods.