Unemployment – Definition and Types

Employment is the number of people who are currently working, economically speaking, regardless if it is part-time or full time.

As for unemployment, it is a more subtle concept. The U.S Census Bureau is in charge of recollecting all the data related to unemployment. This same entity defines an unemployed person as someone “who doesn’t have a job, is searching for one, and is capable of working.” So, a person is considered unemployed when they do not have a job and has been searching for a job in the latest four weeks actively. Therefore, unemployment can be defined as the total number of people actively looking for a job, but they are not actually employed.

Unemployment is one of the biggest problems for current society. Unemployed people or those who don’t have a job or profession must face difficult situations due to not having enough income to sustain their families and themselves. When the total number of unemployed people grows to levels considered out of the normal, a great preoccupation grows within society.

So we can understand why this concept is so important to the economics niche (and overall, most of the population), it is crucial to pay attention to both concepts, employment and unemployment, understand how they are defined and how they are both measured.

What is Unemployment?

Unemployment can be defined as the group of people with no job in the actual day, even when they have the availability to work (they do not possess any mental or physical limitations for that), and have been searching for work opportunities in a determinate period. As you could see above, this timeframe is often for four weeks.

The active population of a country is the sum of employment and unemployment, which means it is equal to the sum of the people who are working actively and those who are looking for a job.

Unemployment is one of the most important economic indicators. It lets us know if people are able or unable to obtain a job, and therefore, positively contribute to the economy. When the unemployment levels are high, the total economic production will be significantly affected, and vice versa,

Here are some essential facts about unemployment:

  • Unemployment is the result of a group of people who want to work, but have not found any opportunities. Due to this, these people do not have the proper economic output and have troubles with subsisting.
  • Economic distress often results in higher unemployment levels. On the other hand, an overheated economy translates into lower unemployment rates.
  • There are four types of unemployment: frictional, cyclical, structural, and institutional.
  • Although we stated at the beginning that the U.S Census Bureau recollects the data related to unemployment, other government agencies collect this type of information and publish it in multiple ways, depending on the entity that performed the research.

Measuring unemployment

Unemployment is measured by all countries worldwide through different means. Let’s take the United States as an example. Here, the government uses techniques such as surveys and census counts. It’s important to note that the number of unemployment insurance recollects unemployment data frequently.

Also, each month, there is a survey performed by the U.S. Census Bureau via the Bureau of Labor Statistics (BLS). This survey is known as the “Current Population Survey or CPS. The main purpose of the survey is to measure the nation’s current unemployment rate. This survey was implemented in 1940, and it is still being performed to this day.

The CPS takes 60,000 households, which is equal to 110,000 people, approximately per month. A part of the households is changed monthly, so the data collected can be more precise and doesn’t take the same people as samples.

The unemployment rate has multiple variations, and therefore, the term “unemployed person” can be defined in different ways, as well as the “labor force.” For instance, the LBS states the official unemployment rate is equal to the “U-3” unemployment rate, which makes reference to the total number of people unemployed taking a fixed percentage from the civilian labor force. However, this definition does not take into consideration other unemployed workers who are not looking for job opportunities actively due to the toughness of the labor market.

There are other categories of unemployment, and those include, for example, workers who want to commit to full-time work, but they are unable to find one and must stick to their part-time jobs.

Different types of unemployment

As it was mentioned above, there are four main types of unemployment: frictional, cyclical, structural, and institutional. Not all of them are equally serious, and each one of them depends on several factors that determine them. Knowing them is necessary to comprehend the topic further.

Cyclical Unemployment

First, we must consider the unemployment rate of any country is directly related to the private industry, and the former is heavily influenced by the different economic cycles. The unemployment related to these types of circumstances is known as cyclical unemployment.

During times of recession, unemployment rates get higher. On the other hand, in times of growth, unemployment rates drop considerably. However, it is worth noting that the effects of the different cycles will affect the employment and unemployment rates differently, depending on the current government’s management.

Structural Unemployment

Structural unemployment is the most complicated to manage, and it is the one that causes the most troubles in the current society. It happens when the demand and supply of work are unequal, meaning that it happens when there are more workers looking for work than work opportunities. The same principle is applied when businesses need workers with a specific preparation, and they can’t find them in the market.

Structural unemployment is responsible for the hardest economical crises in a country. It also reflects how prepared are the workers of a nation, as they are unable to meet the requirements that the business asks state. It is something paradoxical.

Frictional Unemployment

Frictional unemployment is voluntary, meaning that it is the result of a person who quits their job to dedicate that time to other areas of their life, such as studying or maybe taking a break.

This kind of unemployment is also applied when someone moves to a different city and tries to find a job in their new place of residence. Another example is when workers abandon their jobs temporarily so they can dedicate more time to take care of their families.

Institutional Unemployment

This type of unemployment is the result of multiple long-term institutional factors. For instance, we can take high rates of unionization and discriminatory hiring as one of the main causes of institutional unemployment.

Other types of unemployment

Hidden Unemployment

Hidden unemployment does not appear in a country’s unemployment rates. This term also makes reference to a person who is currently employed, but they are overqualified for their current position, and their productive capacity is being wasted.

Seasonal Unemployment

Seasonal unemployment repeats every year in a specific season of the year. Some businesses only need to hire more workers at determinate moments, which are predictable most of the time. This type of unemployment is directly related to seasonal work, such as tourism or agriculture.

What are the effects of unemployment?

Unemployment is a synonym to income reduction, and therefore, it produces radical changes in a person’s lifestyle. For instance, they live with the uncertainty of how long the situation will last. Under these circumstances, people often reduce their expenses drastically.

This affects families greatly, leading to a significant destabilization of the family relationships. However, in other cases, this can lead to families supporting each other, resulting in a better relationship thanks to the confidence and security they share with each other.

History of unemployment in the United States

Since the introduction of the CPS in the 1940s, the government has been tracking the unemployment rates nationwide.

The Great Depression (1933) was the period with the highest unemployment rate in the history of the USA, with a percentage of 24.9. During the period comprehended between 1931 and 1940, the unemployment rates were higher than 14 per cent.

Throughout the years, this high percentage started to drop, but there was a significant increase in 1982 when the rate rose to more than 10%.

The Great Recession (2009) was another period where the unemployment rates increased, this time to 10%.

As of now, it is still unknown how the COVID-19 pandemic has affected this area, statistically speaking.

Conclusion

Unemployment happens due to different reasons, and it can bring negative psychological consequences to a person, including low self-esteem, depression, anxiety, and other problems, besides the economical repercussions.

The way someone reacts to unemployment depends on the personality of each individual. Some people tend to react immediately and start looking for ways to get out of such a challenging situation as soon as possible. However, other people feel hopeless and do not have enough confidence to start looking for another work opportunity, resulting in less confidence in their capacities and themselves. Unemployment does not affect everyone equally.

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