12.2. Unemployment
Another indicator of economic activity compares the number of people in the labor force to the number looking for work. The Labor Department gathers this information and gives it to its Bureau of Labor Statistics (BLS). The BLS then calculates the unemployment rate - the percentage of those in the labor force, over the age of 16, actively seeking work but unable to find jobs. Graph 12-3 reports average unemployment for the years 1960 to 1992. Compare the trends in unemployment to the trends in GDP (Graph 12-1). Can you see a relationship?
Some economists criticize the government's method of calculating unemployment because it fails to include "discouraged workers" in its data. "Discouraged workers" are those who have been without work for so long that they have simply quit looking. For this reason, critics say, real unemployment may be far more serious than government statistics show. Similarly, when businesses begin hiring, discouraged workers reenter the labor force and this may temporarily slow improvement in the unemployment rate.
Types of Unemployment. The reasons people are unemployed vary. It may simply suit their needs to be temporarily out of work. Or it may be that the demand for a particular type of worker is falling, or that the demand for workers in general is diminishing. Economists have defined these different types of unemployment:
• Frictional unemployment. Temporary, unavoidable unemployment is described as frictional unemployment. There are always some people who are out of work for completely unavoidable reasons. For example, it takes time for workers to move from one job to another. Until they actually start working again, they will be counted in government data as "unemployed." Similarly, people entering the labor force for the first time are considered to be unemployed until they find their first job.
Seasonal employees are still another category of workers who spend a part of the year in voluntary unemployment. Waiters who earn their living at summer and winter resorts, for example, add to the unemployment statistics during the fall and spring months.
• Structural unemployment. Structural unemployment results from technological and other changes in a local economy. There was a time, for example, when most building elevators were run by "elevator operators." Today, elevator cars are self-service. Elevator operators who lost their jobs when self-service cars were installed became part of the structurally unemployed until they found other jobs.
Changing technology is not the only cause of structural unemployment. Long-term changes in consumer preferences or movement of jobs from one region or country to another can cause structural unemployment even among skilled workers. Failure to acquire needed skills also keeps many on the unemployment rolls. Young high school dropouts make up a large portion of today's structurally unemployed.
• Cyclical unemployment. Changes in general business activity also cause unemployment. Declining demand for goods and services results in rising unemployment. Increasing demand will eventually result in increasing employment.
What Is Full Employment? Like everyone, economists want to eliminate unemployment. But full employment, as one might call it, does not mean the total elimination of unemployment. Frictional and structural unemployment are expected, and economists combine these two rates in what is described as the natural rate of unemployment.
When the actual rate of unemployment equals the
natural rate, the economy is at full employment. In recent years the natural rate of unemployment has been estimated at 5 to 6 percent. For example, with a labor force of about 125 million, and a natural rate of unemployment at 5 percent, economists would proclaim full employment, even though 6.25 million people were out of work!
