Introduction to Unemployment
Economics: IB Diploma, topic 2.3.1
Introduction to Unemployment
An economy's performance is commonly measured using three metrics, one of which is unemployment. Unemployment is defined as the number of people who are actively seeking a job but currently without a job.
Defining unemployment
- Key definitions include:
- Employed: currently working for pay.
- Unemployed: Out of work and actively looking for a job.
- Out of the labor force: Out of paid work and not actively looking for a job.
- Labor force: the number of employed plus the unemployed.
Unemployment in context
- Reports typically describe unemployment as a percentage or a rate. A recent report might have said, for example, from August to November 2009, the U.S. unemployment rate rose from 9.7% to 10.0%. This change may seem small. However, remember that the U.S. economy has around 160 million adults who either have jobs or are looking for them.
- A rise or fall of just 0.1% in the unemployment rate of 160 million potential workers translates into 160,000 people, which is roughly the total population of a city like Syracuse, New York.
Measuring unemployment
- The U.S. unemployment rate, which is based on a monthly survey carried out by the U.S. Bureau of the Census, asks questions to divide the adult population into employed, unemployed, or not in the labor force.
- To be classified as unemployed, a person must be without a job, currently available to work, and actively looking for work in the previous four weeks.
- Therefore, a person who does not have a job but who is not currently available to work or has not actively looked for work in the last four weeks is counted as out of the labor force.
Labor force participation rate
- Another important statistic to consider when measuring the labor market is the labor force participation rate.
- This is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job. In other words, this metric measures the percentage of the adult population that is in the labor force.
Test yourself on Introduction to Unemployment
Jill is out of work, but is actively applying for jobs. Which category does Jill fall into?
Robert is out of work and has not looked for work in the last two months. Which category does Robert fall into?