Economics Online Tutor
The study of unemployment in economics covers a lot of material. The
pages in this section summarize many of the concepts and issues involved.
In addition, some issues concerning unemployment are mentioned in
In this section, the discussion begins on this page with a list of the types of
unemployment and also a list of the definitions of terms used in association with a
discussion of unemployment. For the rest of the topics in this section, click on
the links in the left hand column of this page.
Types of Unemployment:
Structural unemployment: This is the type of unemployment that is caused
by job-seekers not having the skills necessary to fill the open positions. It implies
that enough jobs are available in the economy for these job-seekers, but the
people who make hiring decisions don't believe that the job-seekers are qualified
for the positions that are available. Structural unemployment is often associated
with changes in technology. New technology often requires new job skills, and
jobs that require older technology are eliminated. Structural unemployment is
considered to be part of the natural rate of unemployment.
Frictional unemployment: This is the unemployment that arises from the
fact that there is always a time gap between the time when a person without a job
starts actively looking for a job, and the time when that person finds a job. In a
dynamic economy, many people will fall into this category at any point in time,
including the time when the unemployment statistics are compiled. Frictional
unemployment is considered to be part of the natural rate of unemployment.
Cyclical unemployment: This is the unemployment that is associated with an
economy that is operating at below its full-employment, or optimal level of output.
Cyclical unemployment is directly caused by a downturn in the business cycle. It is
most closely associated with a recession. Since it is caused by a down economy,
cyclical unemployment is not part of the natural rate of unemployment.
Seasonal unemployment: This is the unemployment caused by the fact that
some jobs have busy seasons and slow seasons. During the slow seasons, many
workers are laid off, but will be expected to be rehired once the busy season
returns. Seasonal unemployment is considered to be part of the natural rate of
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Calculating the Unemployment Rate:
First, the formula used:
The unemployment rate is equal to the number of people classified as unemployed
divided by the total labor force, expressed as a percentage.
This formula requires definitions of the terms used:
Unemployed persons: Only people without jobs who are actively looking for work are counted as
being unemployed. This means that discouraged workers, and others not active in a job search, are not
counted. The U.S. Department of Labor considers a person to be actively looking for work if that person
is available for work and has looked for work within the past four weeks, or is waiting for a recall after
being laid off, or is starting a job within 30 days.
Total labor force: Defined as the number of employed persons plus the number of persons counted
as unemployed. This means that people with jobs are counted as employed, even though many of them
may be considered underemployed (for example, they may be working part time but are looking for full
time work). The formula used by the U.S. Department of Labor excludes the following residents from the
total labor force: residents under 16 years of age, institutionalized adults, and adults not looking for work.
Other terms associated with a discussion of unemployment, even though they are not part of the
unemployment rate calculations:
Discouraged workers: Discouraged workers are people without jobs who have given up looking for
work, and are no longer active in their job searches. These people are not counted as being part of the
total labor force, and are not counted as unemployed. They are not part of the unemployment statistics.
Total population: This is the number of people who live in the economy, including those who are too
young to be counted as part of the labor force and those who are retired.
Working age population: The total population minus the people who are either too young or too old
to be considered part of the labor force.
Labor force participation rate: The percentage of the working age population that is counted in the
total labor force. This includes those who are counted as employed as well as those who are counted as
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