Unemployment
by : Sundos Hameed
Definition and Measurements
The Unemployment rate is the percentage of the labor force that is
not working. The rate is calculated by dividing the number of people
who are unemployed by the number of people in the labor force:
Number unemployed
Unemployment rate =
Number in labor force
This ratio seems simple enough, but there are several subtle
issues at work here. First, the unemployment rate does not measures
the percentage of the total population that is not working :it
measures the percentage of the labor force that is not working. Who
is the labor force? Obviously, everybody who is employed is part of
the labor force. But only some of those who are not currently
employed are counted in the labor force.
The Bureau of Labor Statistics of the Department of Labor
compiles labor data each month based on an extensive survey of U.S
households. All U.S residents are potential members of the labor
force. The Labor Department arrives at the size of the actual labor
force by using this formula:
labor force = all U.S residents
minus resident under 16 years of age
minus institutionalized adults
minus adults not working for work
Interpreting the Unemployment rate
Is the unemployment rate an accurate measures? The fact that the
rate does not include those who are not actively looking for work is
not necessarily a failing. Many people who are not actively looking
for work- to do homemakers, older citizens, and student , for
example- have made a decision not to work- to do housework , to
entire , or to stay in school. These people rightly are not counted
among the unemployed.
But there are people missing from the employment statistics
who are not working and not looking for work yet would take a job if
one were offered.
Discouraged Workers have looked for work in past year but have
given up looking for work because they believe that no one will hire
them. These individuals are ignored by the official unemployment
rate, even though they are able to work and may have spent a long
time looking for work.
Discouraged Workers are one source of hidden unemployment;
underemployment is another. Unemployment is the underutilization
of workers, employing them in tasks that do not fully utilize their
productive potential; this include part time workers who would
prefer full-time employment.
Types of Unemployment
Economists have identified four basic types of unemployment:
Seasonal unemployment A product of regular, recurring
changes in the hiring needs of certain industries on a monthly
or seasonal basis.
Frictional unemployment A product of the short – term
movement of workers between jobs and first-time job seekers.
Structural unemployment A product of technological change
and other changes in the structure of the economy.
Cyclical unemployment A product of business-cycle
fluctuations.
Costs of Unemployment
The cost of unemployment is more than the obvious loss of
income and status suffered by the individuals who is not working.
Unemployed workers produce no output. So an economy with
unemployment will operate inside its production possibilities curve
rather than on the curve. Economists measures this lost output in
terms of The GDP gap:
GDPgap = potential real GDP – actual real GDP
potential real GDP is the level of output produced when nonlabor
resources are fully utilized and unemployment is at its natural rate.
The natural rate of unemployment is the unemployment rate that
would exist in the absence of cyclical unemployment.
The Record of Unemployment
Unemployment rates in the U.S from 1951 to 2005 shows that
the unemployment rate for all workers reached a low of 2.9 percent
in 1953 and a high of 9.7 in 1982. Is show also that in most years, the
unemployment rate for women is higher than it is for men. Also
Teenagers have the highest unemployment rates in the economy.