Unemployment

Unemployment

Overview
Unemployment as defined by the International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

, occurs when people are without jobs
Job (role)
A job is a regular activity performed in exchange for payment. A person usually begins a job by becoming an employee, volunteering, or starting a business. The duration of a job may range from an hour to a lifetime . If a person is trained for a certain type of job, they may have a profession...

 and they have actively sought work
Wage labour
Wage labour is the socioeconomic relationship between a worker and an employer, where the worker sells their labour under a formal or informal employment contract. These transactions usually occur in a labour market where wages are market determined...

 within the past four weeks. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force. In a 2011 news story, BusinessWeek reported, "More than 200 million people globally are out of work, a record high, as almost two-thirds of advanced economies and half of developing countries are experiencing a slowdown in employment growth, the group said."

There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment.
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Unemployment as defined by the International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

, occurs when people are without jobs
Job (role)
A job is a regular activity performed in exchange for payment. A person usually begins a job by becoming an employee, volunteering, or starting a business. The duration of a job may range from an hour to a lifetime . If a person is trained for a certain type of job, they may have a profession...

 and they have actively sought work
Wage labour
Wage labour is the socioeconomic relationship between a worker and an employer, where the worker sells their labour under a formal or informal employment contract. These transactions usually occur in a labour market where wages are market determined...

 within the past four weeks. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force. In a 2011 news story, BusinessWeek reported, "More than 200 million people globally are out of work, a record high, as almost two-thirds of advanced economies and half of developing countries are experiencing a slowdown in employment growth, the group said."

There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....

, neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...

 and the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

 of economics argue that market mechanisms are reliable means of resolving unemployment. These theories argue against interventions imposed on the labour market from the outside, such as unionization, minimum wage law
Minimum wage law
Minimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. More than 90% of all countries have some kind of minimum wage legislation....

s, taxes, and other regulations that they claim discourage the hiring of workers. Keynesian economics emphasizes the cyclical nature of unemployment and recommends interventions it claims will reduce unemployment during recessions. This theory focuses on recurrent supply shock
Supply shock
A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price....

s that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Keynesian models recommend government interventions designed to increase demand for workers; these can include financial stimuli, publicly funded job creation, and expansionist monetary policies. Georgists
Henry George
Henry George was an American writer, politician and political economist, who was the most influential proponent of the land value tax, also known as the "single tax" on land...

, half a century before Keynes, also noted the cyclical nature but focused on the role of speculation in land which pushes up economic rent. Because rent must be paid mostly from wages (yield of labor) but also from interest (yield of capital), economic activity cannot be sustained in the rent bubble, which finally burst resulting in recessions or depressions. Once the speculation is wrung out of system the cycle of land speculation begins again. Henry George therefore advocated the taxation of land values (Single Tax) to stop land speculation and in order to eliminate taxation of labor and capital. George opposed land nationalization and Marx's theories. Marxism
Marxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...

 focuses on the relations between the owners and the workers
Proletariat
The proletariat is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian...

, whom, it claims, the owners pit against one another in a constant struggle for jobs and higher wages. The unemployment produced by this struggle is said to benefit the system by reducing wage costs for the owners. For Marxists the causes of and solutions to unemployment require abolishing capitalism and shifting to socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

 or communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

.

In addition to these three comprehensive theories of unemployment, there are a few categorizations of unemployment that are used to more precisely model the effects of unemployment within the economic system. The main types of unemployment include structural unemployment which focuses on structural problems in the economy and inefficiencies inherent in labour markets including a mismatch between the supply and demand of laborers with necessary skill sets. Structural arguments emphasize causes and solutions related to disruptive technologies
Disruptive technology
A disruptive technology or disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network , displacing an earlier technology there...

 and globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...

. Discussions of frictional unemployment
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....

 focus on voluntary decisions to work based on each individuals' valuation of their own work and how that compares to current wage rates plus the time and effort required to find a job. Causes and solutions for frictional unemployment often address barriers to entry and wage rates. Behavioral economists highlight individual biases in decision making and often involve problems and solutions concerning sticky wages and efficiency wages
Efficiency wages
In labor economics, the efficiency wage hypothesis argues that wages, at least in some markets, are determined by more than simply supply and demand. Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage in order to increase their...

.

History


In traditional societies, salaried jobs did not exist, as money was not in use. These cultures lived off the land directly, and the land belonged to the tribe or to no one. Everyone knew how to build shelter and make food. When these cultures invented currency and moved to the cities, they began to depend on money to buy food from a middle man, instead of growing, gathering, or hunting the food directly from nature. Dependence on jobs to make money to buy food and shelter was the beginning of unemployment.

Because it has not always been acknowledged or measured systematically, there are limited historical records on unemployment. Industrialization involves economies of scale that often prevent individuals from having the capital to create their own jobs to be self-employed. An individual who cannot either join an enterprise or create a job is unemployed. As individual farmers, ranchers, spinners, doctors and merchants are organized into large enterprises, those who cannot join or compete become unemployed.

Recognition of unemployment occurred slowly as economies across the world industrialized and bureaucratized. The recognition of the concept of "unemployment" is best exemplified through the well documented historical records in England. For example, in 16th century England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 no distinction was made between vagrant
Vagrancy (people)
A vagrant is a person in poverty, who wanders from place to place without a home or regular employment or income.-Definition:A vagrant is "a person without a settled home or regular work who wanders from place to place and lives by begging;" vagrancy is the condition of such persons.-History:In...

s and the jobless; both were simply categorized as "sturdy beggar
Sturdy beggar
Sturdy beggar is a former British English legal expression for someone was fit and able to work but begged or wandered for a living instead. Sometimes men willing to work but unable to find work were lumped into the same category....

s", to be punished and moved on. The closing of the monasteries in the 1530s increased poverty, as the church had helped the poor. In addition, there was a significant rise in enclosure
Enclosure
Enclosure or inclosure is the process which ends traditional rights such as mowing meadows for hay, or grazing livestock on common land. Once enclosed, these uses of the land become restricted to the owner, and it ceases to be common land. In England and Wales the term is also used for the...

 during the Tudor period
Tudor period
The Tudor period usually refers to the period between 1485 and 1603, specifically in relation to the history of England. This coincides with the rule of the Tudor dynasty in England whose first monarch was Henry VII...

. Also the population was rising. Those unable to find work had a stark choice: starve or break the law. In 1535, a bill was drawn up calling for the creation of a system of public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...

 to deal with the problem of unemployment, to be funded by a tax on income and capital. A law passed a year later allowed vagabonds to be whipped and hanged. In 1547, a bill was passed that subjected vagrants to some of the more extreme provisions of the criminal law, namely two years servitude and branding with a "V" as the penalty for the first offense and death for the second. During the reign of Henry VIII, as many as 72,000 people are estimated to have been executed. In the 1576 Act each town was required to provide work for the unemployed. The Elizabethan Poor Law
Elizabethan Poor Law (1601)
The Act for the Relief of the Poor 1601, popularly known as the "Elizabethan Poor Law", "43rd Elizabeth" or the "Old Poor Law" was an Act of Parliament passed in 1601 which created a national poor law system for England and Wales....

 of 1601, one of the world's first government-sponsored welfare programs, made a clear distinction between those who were unable to work and those able-bodied people who refused employment. Under the Poor Law
Poor Law
The English Poor Laws were a system of poor relief which existed in England and Wales that developed out of late-medieval and Tudor-era laws before being codified in 1587–98...

 systems of England and Wales
English Poor Laws
The English Poor Laws were a system of poor relief which existed in England and Wales that developed out of late-medieval and Tudor-era laws before being codified in 1587–98...

, Scotland and Ireland
Irish Poor Laws
The Irish Poor Laws were a series of Acts of Parliament intended to address social instability due to widespread and persistent poverty in Ireland. While some legislation had been introduced by the pre-Union Parliament of Ireland prior to the Act of Union, the most radical and comprehensive...

 a workhouse
Workhouse
In England and Wales a workhouse, colloquially known as a spike, was a place where those unable to support themselves were offered accommodation and employment...

 was a place where people who were unable to support themselves, could go to live and work. According to Jackson J. Spielvogel
Jackson J. Spielvogel
Jackson Joseph Spielvogel is an associate professor emeritus at Pennsylvania State University. His textbooks are commonly used in high school and college Western Civilization classes. Spielvogel holds a Ph.D., from Ohio State University, and specialized in Reformation history under the supervision...

, "Poverty was a highly visible problem in the eighteenth century, both in cities and in the countryside...In France and Britain by the end of the century, an estimated 10 percent of the people depended on charity or begging for their food." By 1776 some 1,912 parish and corporation workhouses had been established in England and Wales, housing almost 100,000 paupers.
The decade of the 1930s saw the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 impact unemployment across the globe. One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet Union. In Germany the unemployment rate reached nearly 25% in 1932. In some towns and cities in the north east of England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

, unemployment reached as high as 70%; the national unemployment level peaked at more than 22% in 1932. Unemployment in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

 reached 27% at the depth of the Depression in 1933. In 1929, the U.S. unemployment rate averaged 3%. In 1932, 25% of all American workers and 37% of all nonfarm workers were unemployed. In Cleveland, Ohio, the unemployment rate was 60%; in Toledo, Ohio, 80%. There were two million homeless people migrating across the United States. Over 3 million unemployed young men were taken out of the cities and placed into 2600+ work camps managed by the CCC
Civilian Conservation Corps
The Civilian Conservation Corps was a public work relief program that operated from 1933 to 1942 in the United States for unemployed, unmarried men from relief families, ages 18–25. A part of the New Deal of President Franklin D...

.

About 25 million people in the world's 30 richest countries will have lost their jobs between the end of 2007 and the end of 2010 as the economic downturn pushes most countries into recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

. In April 2010, the U.S. unemployment rate was 9.9%, but the government’s broader U-6 unemployment rate was 17.1%. There are six unemployed people, on average, for each available job.
Unemployment in the United Kingdom fell later in the 1930s as the depression eased, and remained low (in six figures) after World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

. However, by 1972 it had crept back up above 1,000,000, and was even higher by the end of the decade, with inflation also being high. Although the monetarist
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

 economic policies of Margaret Thatcher's
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...

 Conservative
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...

 government saw inflation reduced after 1979, unemployment soared in the early 1980s, exceeding 3,000,000 - a level not seen for some 50 years - by 1982. This represented one in eight of the workforce, with unemployment exceeding 20% in some parts of the United Kingdom which had relied on the now-declining industries such as coal mining
Coal mining
The goal of coal mining is to obtain coal from the ground. Coal is valued for its energy content, and since the 1880s has been widely used to generate electricity. Steel and cement industries use coal as a fuel for extraction of iron from iron ore and for cement production. In the United States,...

. However, this was a time of high unemployment in all major industrialised nations. By the spring of 1983, unemployment in the United Kingdom had risen by 6% in the previous 12 months; compared to 10% in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

, 23% in the United States of America and 34% in West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....

 (seven years before reunification).

Unemployment in the United Kingdom remained above 3,000,000 until the spring of 1987, by which time the economy was enjoying a boom. By the end of 1989, unemployment had fallen to 1,600,000. However, inflation had reached 7.8% and the following year it reached a nine-year high of 9.5%; leading to increased interest rates. Another recession began during 1990 and lasted until 1992. Unemployment began to increase and by the end of 1992 nearly 3,000,000 in the United Kingdom were unemployed. Then came a strong economic recovery. With inflation down to 1.6% by 1993, unemployment then began to fall rapidly, standing at 1,800,000 by early 1997.
The official unemployment rate in the 16 EU countries that use the euro rose to 10% in December 2009 as a result of another recession
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...

. Latvia
Latvia
Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...

 had the highest unemployment rate in EU at 22.3% for November 2009. Europe's young workers have been especially hard hit. In November 2009, the unemployment rate in the EU27 for those aged 15–24 was 18.3%. For those under 25, the unemployment rate in Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

 was 43.8%.

Into the 21st century, unemployment in the United Kingdom
Unemployment in the United Kingdom
Unemployment in the United Kingdom is measured by the Office for National Statistics and in June 2011 it stood at 7.7 per cent, or 2.45 million people, of whom 1.52 million claim benefits from Jobseeker's Allowance. The figures are compiled through the Labour Force Survey, which asks a sample of...

 remained low and the economy remaining strong, while at this time several other European economies - namely France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

 (reunified a decade earlier) - experienced a minor recession and a substantial rise in unemployment.

In 2008, when the recession brought on another increase in the United Kingdom, after 15 years of economic growth and no major rises in unemployment. Early in 2009, unemployment passed the 2,000,000 mark, by which time economists were predicting it would soon reach 3,000,000. However, the end of the recession was declared in January 2010 and unemployment peaked at 2,500,000 shortly afterwards, appearing to ease fears of unemployment reaching 3,000,000.

A flood of inexpensive consumer goods from China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...

 has recently encountered criticism from Europe, the United States and some African countries. As of April 26, 2005 Asia Times article notes that, "In regional giant South Africa, some 300,000 textile workers have lost their jobs in the past two years due to the influx of Chinese goods". The increasing U.S. trade deficit with China has cost 2.4 million American jobs between 2001 and 2008, according to a study by the Economic Policy Institute
Economic Policy Institute
The Economic Policy Institute is a 501 non-profit, liberal, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy...

 (EPI). From 2000 to 2007, the United States had lost a total of 3.2 million manufacturing jobs.

Definitions, types and theories


Economists
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 distinguish between various overlapping types of and theories of unemployment, including cyclical or Keynesian unemployment, frictional unemployment
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....

, structural unemployment
Structural unemployment
Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment...

 and classical unemployment. Some additional types of unemployment that are occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden unemployment. The U.S. BLS measures six types of unemployment, U1-U6.

Though there have been several definitions of voluntary and involuntary unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is attributed to the individual's decisions, whereas involuntary unemployment exists because of the socio-economic environment (including the market structure, government intervention, and the level of aggregate demand) in which individuals operate. In these terms, much or most of frictional unemployment
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....

 is voluntary, since it reflects individual search behavior. Voluntary unemployment includes workers who reject low wage jobs whereas involuntary unemployment includes workers fired due to an economic crisis, industrial decline, company bankruptcy, or organizational restructuring.

On the other hand, cyclical unemployment, structural unemployment, and classical unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical (natural) unemployment may result from the legislative and economic choices made by labour unions or political parties
Political party
A political party is a political organization that typically seeks to influence government policy, usually by nominating their own candidates and trying to seat them in political office. Parties participate in electoral campaigns, educational outreach or protest actions...

. So, in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, some unemployed workers would still remain. This happens with cyclical unemployment, as macroeconomic forces cause microeconomic unemployment which can boomerang back and exacerbate these macroeconomic forces.

Classical unemployment



Classical or real-wage unemployment occurs when real wages for a job are set above the market-clearing level, causing the number of job-seekers to exceed the number of vacancies.

Most economists have argued that unemployment increases the more the government intervenes into the economy to try to improve the conditions of those without jobs. For example, minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...

 laws raise the cost of laborers with few skills to above the market equilibrium, resulting in people who wish to work at the going rate but cannot as wage enforced is greater than their value as workers becoming unemployed. Laws restricting layoffs made businesses less likely to hire in the first place, as hiring becomes more risky, leaving many young people unemployed and unable to find work.

However, this argument is criticized for ignoring numerous external factors and overly simplifying the relationship between wage rates and unemployment- in other words, that other factors may also affect unemployment. Some, such as Murray Rothbard
Murray Rothbard
Murray Newton Rothbard was an American author and economist of the Austrian School who helped define capitalist libertarianism and popularized a form of free-market anarchism he termed "anarcho-capitalism." Rothbard wrote over twenty books and is considered a centrally important figure in the...

, suggest that even social taboos can prevent wages from falling to the market clearing level. It is noted that there can be unemployment when job market is in equilibrium. For example, the salary of appliance repairman in a city is $3,000. At this salary, the appliance stores of city want to hire 100 repairmen. But there are 300 repairmen looking for jobs within the city. So there are 200 repairmen looking for jobs are unemployed. At this time, job market is not in equilibrium. But six months later, the salary of appliance repairman in this city drop to $1,000. At this salary, the appliance stores of city want to hire 200 repairmen. There are 200 repairman want to accept jobs. For the rest 100 repairmen, they no longer want to work for this kind of job because the salary is too low. By this time, job market reaches equilibrium. But there are still 100 repairmen unemployed because they no longer want to work for this kind of job.

In Out of Work: Unemployment and Government in the Twentieth-Century America, economists Richard Vedder
Richard Vedder
Richard Vedder is an American economist, historian, author, columnist, and currently a professor at Ohio University.-Biography:Born in 1940, Vedder earned his B.A. in economics at Northwestern University in 1962 and his Ph.D in economics at the University of Illinois in 1965. He has since studied...

 and Lowell Gallaway argue that the empirical record of wages rates, productivity, and unemployment in American validates the classical unemployment theory. Their data shows a strong correlation between the adjusted real wage and unemployment in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 from 1900 to 1990. However, they maintain that their data take into account exogenous events.

Cyclical or Keynesian theory of unemployment


Cyclical or Keynesian
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

 unemployment, also known as deficient-demand unemployment, occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages are sticky and do not fall to meet the equilibrium level, and mass unemployment results. Its name is derived from the frequent shifts in the business cycle
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

 although unemployment can also be persistent as occurred during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 of the 1930s. With cyclical unemployment, the number of unemployed workers exceeds the number of job vacancies, so that even if full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....

 were attained and all open jobs were filled, some workers would still remain unemployed. Some associate cyclical unemployment with frictional unemployment because the factors that cause the friction are partially due to cyclical variables. For example, a surprise decrease in the money supply may shock
Supply shock
A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price....

 rational economic actors and suddenly inhibit aggregate demand.

Classical economists
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....

 reject the conception of cyclical unemployment and alternatively suggest that the invisible hand of free markets will respond quickly to unemployment and underutilization of resources by a fall in wages followed by a rise in employment. Similarly, Hayek and others from the Austrian school
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

 of economics argue that if governments intervene through monetary policy to lower interest rates this will exacerbate unemployment by preventing the market from responding effectively.

Keynesian economists on the other hand see the lack of demand for jobs as potentially resolvable by government intervention. One suggested interventions involves deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....

 to boost employment and demand. Another intervention involves an expansionary monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 that increases the demand of money which should reduce interest rates which should lead to an increase in non-governmental spending.

Marxist theory of unemployment


According to Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

, unemployment is inherent within the unstable capitalist system and periodic crises of mass unemployment are to be expected. The function of the proletariat
Proletariat
The proletariat is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian...

 within the capitalist system is to provide a "reserve army of labour
Reserve army of labour
Reserve army of labour is a concept in Karl Marx's critique of political economy. It refers basically to the unemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for...

" that creates downward pressure on wages. This is accomplished by dividing the proletariat into surplus labour (employees) and under-employment (unemployed). This reserve army of labour
Reserve army of labour
Reserve army of labour is a concept in Karl Marx's critique of political economy. It refers basically to the unemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for...

 fight among themselves for scarce jobs at lower and lower wages. At first glance, unemployment seems inefficient since unemployed workers do not increase profits. However, unemployment is profitable within the global capitalist system because unemployment lowers wages which are costs from the perspective of the owners. From this perspective low wages benefit the system by reducing economic rent
Economic rent
Economic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....

s. Yet, it does not benefit workers. Capitalist systems unfairly manipulate the market for labour by perpetuating unemployment which lowers laborers' demands for fair wages. Workers are pitted against one another at the service of increasing profits for owners.

According to Marx, the only way to permanently eliminate unemployment would be to abolish capitalism and the system of forced competition for wages and then shift to a socialist or communist economic system. For contemporary Marxists, the existence of persistent unemployment is proof of the inability of capitalism to ensure full employment.

Involuntary unemployment


In The General Theory, Keynes argued that neo-classical economic theory did not apply during recessions because of excessive savings and weak private investment in an economy. In consequence, people could be thrown out of work involuntarily and not be able to find acceptable new employment.

This conflict between the neoclassical and Keynesian theories has had strong influence on government policy. The tendency for government is to curtail and eliminate unemployment through increases in benefits and government jobs, and to encourage the job-seeker to both consider new careers and relocation to another city.

Involuntary unemployment does not exist in agrarian societies nor is it formally recognized to exist in underdeveloped but urban societies, such as the mega-cities of Africa and of India/Pakistan. In such societies, a suddenly unemployed person must meet their survival needs either by getting a new job at any price, becoming an entrepreneur, or joining the underground economy of the hustler.

Involuntary unemployment is discussed from the narrative standpoint in stories by Ehrenreich
Barbara Ehrenreich
-Early life:Ehrenreich was born Barbara Alexander to Isabelle Oxley and Ben Howes Alexander in Butte, Montana, which she describes as then being "a bustling, brawling, blue collar mining town."...

, the narrative sociology of Bourdieu
Pierre Bourdieu
Pierre Bourdieu was a French sociologist, anthropologist, and philosopher.Starting from the role of economic capital for social positioning, Bourdieu pioneered investigative frameworks and terminologies such as cultural, social, and symbolic capital, and the concepts of habitus, field or location,...

, and novels of social suffering such as John Steinbeck
John Steinbeck
John Ernst Steinbeck, Jr. was an American writer. He is widely known for the Pulitzer Prize-winning novel The Grapes of Wrath and East of Eden and the novella Of Mice and Men...

's The Grapes of Wrath
The Grapes of Wrath
The Grapes of Wrath is a novel published in 1939 and written by John Steinbeck, who was awarded the Pulitzer Prize in 1940 and the Nobel Prize for Literature in 1962....

.

Full employment


In demand-based theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, eventually the economy hits an "inflation barrier" imposed by the four other kinds of unemployment to the extent that they exist.

Some demand theory economists see the inflation barrier as corresponding to the natural rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

. The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium and there is pressure for neither rising inflation rates nor falling inflation rates. An alternative technical term for this rate is the NAIRU
NAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...

 or the Non-Accelerating Inflation Rate of Unemployment.

No matter what its name, demand theory holds that this means that if the unemployment rate gets "too low," inflation will get worse and worse (accelerate) in the absence of wage and price controls (incomes policies).

One of the major problems with the NAIRU
NAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...

 theory is that no one knows exactly what the NAIRU is (while it clearly changes over time). The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.

Another, normative, definition of full employment might be called the ideal unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment (excluding that part encouraging the McJobs management strategy) and would thus be very low. However, it would be impossible to attain this full-employment target using only demand-side Keynesian stimulus without getting below the NAIRU
NAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...

 and suffering from accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.

To the extent that hidden unemployment exists, it implies that official unemployment statistics provide a poor guide to what unemployment rate coincides with "full employment".

Structural unemployment



Structural unemployment
Structural unemployment
Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers seeking employment...

 occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs. Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching
Job hunting
Job hunting, job seeking, or job searching is the act of looking for employment, due to unemployment or discontent with a current position. The immediate goal of job seeking is usually to obtain a job interview with an employer which may lead to getting hired...

 skills) become "rusty" and obsolete. Problems with debt may lead to homelessness
Homelessness
Homelessness describes the condition of people without a regular dwelling. People who are homeless are unable or unwilling to acquire and maintain regular, safe, and adequate housing, or lack "fixed, regular, and adequate night-time residence." The legal definition of "homeless" varies from country...

 and a fall into the vicious circle of poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...

. This means that they may not fit the job vacancies that are created when the economy recovers. Some economists see this scenario as occurring under British Prime Minister Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...

 during the 1970s and 1980s. The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence
Path dependence
Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant....

 or "hysteresis".

Much technological unemployment (e.g. due to the replacement of workers by machines) might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labour productivity mean that fewer workers are needed to produce the same level of output every year. The fact that aggregate demand can be raised to deal with this problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's Law
Okun's law
In economics, Okun's law is an empirically observed relationship relating unemployment to losses in a country's production first quantified by Arthur M. Okun. The "gap version" states that for every 1% increase in the unemployment rate, a country's GDP will be at an additional roughly 2% lower...

, the demand side must grow sufficiently quickly to absorb not only the growing labour force but also the workers made redundant by increased labour productivity. Otherwise, we see a jobless recovery
Jobless recovery
A jobless recovery or jobless growth is an economic phenomon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment...

such as those seen in the United States in both the early 1990s and the early 21st century.

Technological unemployment has historically been temporary and the economy has adapted and created jobs in other sectors, however, some analysts, such as Martin Ford, in The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future argue that many jobs in the economy will ultimately be automated via advancing technologies such as robotics and artificial intelligence resulting in substantial, permanent structural unemployment.

Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of unemployment that is linked to certain kinds of jobs
Job (role)
A job is a regular activity performed in exchange for payment. A person usually begins a job by becoming an employee, volunteering, or starting a business. The duration of a job may range from an hour to a lifetime . If a person is trained for a certain type of job, they may have a profession...

 (construction work, migratory farm work). The most-cited official unemployment measures erase this kind of unemployment from the statistics using "seasonal adjustment" techniques. The resulting in substantial, permanent structural unemployment.

Frictional unemployment


Frictional unemployment is the time period between jobs when a worker is searching
Search theory
In microeconomics, search theory studies buyers or sellers who cannot instantly find a trading partner, and must therefore search for a partner prior to transacting....

 for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual. Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment, which means that increases or decreases in unemployment are normally under-represented in the simple statistics.

Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand. Such a mismatch can be related to skills, payment, work-time, location, seasonal industries, attitude, taste, and a multitude of other factors. New entrants (such as graduating students) and re-entrants (such as former homemakers) can also suffer a spell of frictional unemployment. Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since it results in a better allocation of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Therefore, governments will seek ways to reduce unnecessary frictional unemployment through multiple means including providing education, advice, training, and assistance such as daycare centers.

The frictions in the labour market are sometimes illustrated graphically with a Beveridge curve
Beveridge curve
A Beveridge curve, or UV-curve, is a graphical representation of the relationship between unemployment and the job vacancy rate . It typically has vacancies on the vertical axis and unemployment on the horizontal...

, a downward-sloping, convex curve that shows a correlation between the unemployment rate on one axis and the vacancy rate on the other. Changes in the supply of or demand for labour cause movements along this curve. An increase (decrease) in labour market frictions will shift the curve outwards (inwards).

Hidden unemployment


Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programs) are not officially counted among the unemployed, even though they are not employed. The same applies to those who have taken early retirement to avoid being laid off, but would prefer to be working. The statistic also does not count the "underemployed
Underemployment
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...

" - those with part time or seasonal jobs who would rather have full time jobs. In addition, those who are of working age but are currently in full-time education are usually not considered unemployed in government statistics. Because of hidden unemployment, official statistics often underestimate unemployment rates.

Long-term unemployment


This is normally defined, for instance in European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 statistics, as unemployment lasting for longer than one year. It is an important indicator of social exclusion
Social exclusion
Social exclusion is a concept used in many parts of the world to characterise contemporary forms of social disadvantage. Dr. Lynn Todman, director of the Institute on Social Exclusion at the Adler School of Professional Psychology, suggests that social exclusion refers to processes in which...

. The Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...

 reports this as 27 weeks or longer.

Measurement


There are also different ways national statistical agencies measure unemployment. These differences may limit the validity of international comparisons of unemployment data. To some degree these differences remain despite national statistical agencies increasingly adopting the definition of unemployment by the International Labour Organization. To facilitate international comparisons, some organizations, such as the OECD, Eurostat
Eurostat
Eurostat is a Directorate-General of the European Commission located in Luxembourg. Its main responsibilities are to provide the European Union with statistical information at European level and to promote the integration of statistical methods across the Member States of the European Union,...

, and International Labor Comparisons Program
Division of international labor comparisons
The International Labor Comparisons Program of the U.S. Bureau of Labor Statistics adjusts economic statistics to a common conceptual framework in order to make data comparable across countries...

, adjust data on unemployment for comparability across countries.

Though many people care about the number of unemployed individuals, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labour force relative to the population. The unemployment rate is expressed as a percentage, and is calculated as follows:



As defined by the International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

, "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work.
Individuals who are actively seeking job placement must make the effort to: be in contact with an employer, have job interviews, contact job placement agencies, send out resumes, submit applications, respond to advertisements, or some other means of active job searching within the prior four weeks. Simply looking at advertisements and not responding will not count as actively seeking job placement. Since not all unemployment may be "open" and counted by government agencies, official statistics on unemployment may not be accurate.

The ILO
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

 describes 4 different methods to calculate the unemployment rate:
  • Labour Force Sample Surveys are the most preferred method of unemployment rate calculation since they give the most comprehensive results and enables calculation of unemployment by different group categories such as race and gender. This method is the most internationally comparable.
  • Official Estimates are determined by a combination of information from one or more of the other three methods. The use of this method has been declining in favor of Labour Surveys.
  • Social Insurance Statistics such as unemployment benefits, are computed base on the number of persons insured representing the total labour force and the number of persons who are insured that are collecting benefits. This method has been heavily criticized due to the expiration of benefits before the person finds work.
  • Employment Office Statistics are the least effective being that they only include a monthly tally of unemployed persons who enter employment offices. This method also includes unemployed who are not unemployed per the ILO
    International Labour Organization
    The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

     definition.


The primary measure of unemployment, U3, allows for comparisons between countries. Unemployment differs from country to country and across different time periods. For example, during the 1990s and 2000s, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 had lower unemployment levels than many countries in the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

, which had significant internal variation, with countries like the UK and Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...

 outperforming Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

 and France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

. However, large economic events such as the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 can lead to similar unemployment rates across the globe.

European Union (Eurostat)


Eurostat
Eurostat
Eurostat is a Directorate-General of the European Commission located in Luxembourg. Its main responsibilities are to provide the European Union with statistical information at European level and to promote the integration of statistical methods across the Member States of the European Union,...

, the statistical office of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

, defines unemployed as those persons age 15 to 74 who are not working, have looked for work in the last four weeks, and ready to start work within two weeks, which conform to ILO
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

 standards. Both the actual count and rate of unemployment are reported. Statistical data are available by member state, for the European Union as a whole (EU27) as well as for the euro area (EA16). Eurostat also includes a long-term unemployment rate. This is defined as part of the unemployed who have been unemployed for an excess of 1 year.

The main source used is the European Union Labour Force Survey (EU-LFS). The EU-LFS collects data on all member states each quarter. For monthly calculations, national surveys or national registers from employment offices are used in conjunction with quarterly EU-LFS data. The exact calculation for individual countries, resulting in harmonized monthly data, depend on the availability of the data.

United States Bureau of Labor Statistics


The Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...

 measures employment and unemployment (of those over 15 years of age) using two different labour force surveys conducted by the United States Census Bureau
United States Census Bureau
The United States Census Bureau is the government agency that is responsible for the United States Census. It also gathers other national demographic and economic data...

 (within the United States Department of Commerce
United States Department of Commerce
The United States Department of Commerce is the Cabinet department of the United States government concerned with promoting economic growth. It was originally created as the United States Department of Commerce and Labor on February 14, 1903...

) and/or the Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...

 (within the United States Department of Labor
United States Department of Labor
The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...

) that gather employment statistics monthly. The Current Population Survey
Current Population Survey
The Current Population Survey is a statistical survey conducted by the United States Census Bureau for the Bureau of Labor Statistics . The BLS uses the data to provide a monthly report on the Employment Situation. This report provides estimates of the number of unemployed people in the United...

 (CPS), or "Household Survey", conducts a survey based on a sample of 60,000 households. This Survey measures the unemployment rate based on the ILO
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

 definition. The Current Employment Statistics survey (CES), or "Payroll Survey", conducts a survey based on a sample of 160,000 businesses and government agencies that represent 400,000 individual employers. This survey measures only nonagricultural, nonsupervisory employment; thus, it does not calculate an unemployment rate, and it differs from the ILO unemployment rate definition. These two sources have different classification criteria, and usually produce differing results. Additional data are also available from the government, such as the unemployment insurance weekly claims report available from the Office of Workforce Security, within the U.S. Department of Labor Employment & Training Administration. The Bureau of Labor Statistics provides up-to-date numbers via a pdf linked here. The BLS also provides a readable concise current Employment Situation Summary, updated monthly.
The BLS
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...

 also calculates six alternate measures of unemployment, U1 through U6, that measure different aspects of unemployment:
  • U1: Percentage of labor force unemployed 15 weeks or longer.
  • U2: Percentage of labor force who lost jobs or completed temporary work.
  • U3: Official unemployment rate per the ILO
    International Labour Organization
    The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...

     definition occurs when people are without jobs and they have actively looked for work within the past four weeks.
  • U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
  • U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
  • U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons (underemployment
    Underemployment
    Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...

    ).

Note: "Marginally attached workers" are added to the total labour force for unemployment rate calculation for U4, U5, and U6. The BLS revised the CPS in 1994 and among the changes the measure representing the official unemployment rate was renamed U3 instead of U5.

Statistics for the U.S. economy as a whole hide variations among groups. For example, in January 2008 U.S. unemployment rates were 4.4% for adult men, 4.2% for adult women, 4.4% for Caucasians, 6.3% for Hispanics or Latinos (all races), 9.2% for African Americans, 3.2% for Asian Americans, and 18.0% for teenagers. Also, the U.S. unemployment rate would be at least 2% higher if prisoners and jail inmates were counted.

The unemployment rate is included in a number of major economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 indexes
Index (economics)
In economics and finance, an index is a statistical measure of changes in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from...

 including the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

' Conference Board's
The Conference Board
The Conference Board, Inc. is a non-profit, non-partisan business membership and research group. It has approximately 12,000 executives in its network, from 1200 corporations in 60 countries. It holds conferences, convenes executives, conducts economic and business management research, and is seen...

 Index of Leading Indicators
Index of Leading Indicators
The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables. These...

 a macroeconomic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...

 measure of the state of the economy.

Limitations of the unemployment definition


The unemployment rate may be different from the impact of the economy on people. The unemployment figures indicate how many are not working for pay but seeking employment for pay. It is only indirectly connected with the number of people who are actually not working at all or working without pay. Therefore, critics believe that current methods of measuring unemployment are inaccurate in terms of the impact of unemployment on people as these methods do not take into account the 1.5% of the available working population incarcerated in U.S. prisons (who may or may not be working while incarcerated), those who have lost their jobs and have become discouraged
Discouraged worker
Not to be confused with Disgruntled worker.In economics, a discouraged worker is a person of legal employment age who is not actively seeking employment or who does not find employment after long-term unemployment...

 over time from actively looking for work, those who are self-employed or wish to become self-employed, such as tradesmen or building contractors or IT consultants, those who have retired before the official retirement age but would still like to work (involuntary early retirees), those on disability
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...

 pensions who, while not possessing full health, still wish to work in occupations suitable for their medical conditions, those who work for payment for as little as one hour per week but would like to work full-time. These people are "involuntary part-time" workers, those who are underemployed, e.g., a computer programmer who is working in a retail store until he can find a permanent job, involuntary stay-at-home mothers who would prefer to work, and graduate and Professional school students who were unable to find worthwhile jobs after they graduated with their Bachelor's degrees.

Internationally, some nations' unemployment rates are sometimes muted or appear less severe due to the number of self-employed individuals working in agriculture. Small independent farmers are often considered self-employed; so, they cannot be unemployed. The impact of this is that in non-industrialized economies, such as the United States and Europe during the early 19th century, overall unemployment was approximately 3% because so many individuals were self-employed, independent farmers; yet, unemployment outside of agriculture was as high as 80%. Many economies industrialize and experience increasing numbers of non-agricultural workers. For example, the United States' non-agricultural labour force increased from 20% in 1800, to 50% in 1850, to 97% in 2000. The shift away from self-employment increases the percentage of the population who are included in unemployment rates. When comparing unemployment rates between countries or time periods, it is best to consider differences in their levels of industrialization and self-employment.

Additionally, the measures of employment and unemployment may be "too high". In some countries, the availability of unemployment benefits can inflate statistics since they give an incentive to register as unemployed. People who do not really seek work may choose to declare themselves unemployed so as to get benefits; people with undeclared paid occupations may try to get unemployment benefits in addition to the money they earn from their work.

However, in countries such as the United States, Canada, Mexico, Australia, Japan and the European Union, unemployment is measured using a sample survey (akin to a Gallup poll). According to the BLS, a number of Eastern European nations have instituted labour force surveys as well. The sample survey has its own problems because the total number of workers in the economy is calculated based on a sample rather than a census.

It is possible to be neither employed nor unemployed by ILO definitions, i.e., to be outside of the "labour force." These are people who have no job and are not looking for one. Many of these are going to school or are retired. Family responsibilities keep others out of the labour force. Still others have a physical or mental disability which prevents them from participating in labour force activities. And of course some people simply elect not to work, preferring to be dependent on others for sustenance.

Typically, employment and the labour force include only work done for monetary gain. Hence, a homemaker
Homemaker
Homemaking is a mainly American term for the management of a home, otherwise known as housework, housekeeping or household management...

 is neither part of the labour force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labour force or unemployment. The latter can be important. In 1999, economists Lawrence F. Katz and Alan B. Krueger estimated that increased incarceration lowered measured unemployment in the United States by 0.17% between 1985 and the late 1990s. In particular, as of 2005, roughly 0.7% of the U.S. population is incarcerated (1.5% of the available working population). Additionally, children, the elderly, and some individuals with disabilities are typically not counted as part of the labour force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labour market

In the early stages of an economic boom
Boom and bust
A credit boom-bust cycle is an episode characterized by a sustained increase in several economics indicators followed by a sharp and rapid contraction. Commonly the boom is driven by a rapid expansion of credit to the private sector accompanied with rising prices of commodities and stock market index...

, unemployment often rises. This is because people join the labour market (give up studying, start a job hunt, etc.) because of the improving job market, but until they have actually found a position they are counted as unemployed. Similarly, during a recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

, the increase in the unemployment rate is moderated by people leaving the labour force or being otherwise discounted from the labour force, such as with the self-employed.

For the fourth quarter of 2004, according to OECD
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...

, (source Employment Outlook 2005 ISBN 92-64-01045-9), normalized unemployment for men aged 25 to 54 was 4.6% in the U.S. and 7.4% in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

. At the same time and for the same population the employment rate (number of workers divided by population) was 86.3% in the U.S. and 86.7% in France. This example shows that the unemployment rate is 60% higher in France than in the U.S., yet more people in this demographic are working in France than in the U.S., which is counterintuitive if it is expected that the unemployment rate reflects the health of the labour market.

Due to these deficiencies, many labour market
Labour economics
Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...

 economists prefer to look at a range of economic statistics such as labour market participation rate, the percentage of people aged between 15 and 64 who are currently employed or searching for employment, the total number of full-time jobs in an economy, the number of people seeking work as a raw number and not a percentage, and the total number of person-hours worked in a month compared to the total number of person-hours people would like to work. In particular the NBER
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...

 does not use the unemployment rate but prefer various employment rates to date recessions.

Participation rate



The labor force participation rate is the ratio between the labor force
Labor force
In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...

 and the overall size of their cohort
Cohort (statistics)
In statistics and demography, a cohort is a group of subjects who have shared a particular time together during a particular time span . Cohorts may be tracked over extended periods in a cohort study. The cohort can be modified by censoring, i.e...

 (national population of the same age range). In the West
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

 during the later half of the 20th century, the labor force participation rate increased significantly, largely due to the increasing number of women entering the workplace.

In the United States, there were three significant stages of women’s increased participation in the labor force. During the late 19th century through the 1920s, very few women worked. They were young single women who typically withdrew from labor force at marriage unless family needed two incomes. These women worked primarily in the textile manufacturing
Textile manufacturing
Textile manufacturing is a major industry. It is based in the conversion of three types of fibre into yarn, then fabric, then textiles. These are then fabricated into clothes or other artifacts. Cotton remains the most important natural fibre, so is treated in depth...

 industry or as domestic workers. This profession empowered women and allowed them to earn a living wage. At times, they were a financial help to their families. Between 1930 and 1950, women labor force participation has increased primarily due to the increased demand for office workers, women participation in the high school movement, and due to electrification
Electrification
Electrification originally referred to the build out of the electrical generating and distribution systems which occurred in the United States, England and other countries from the mid 1880's until around 1940 and is in progress in developing countries. This also included the change over from line...

 which reduced the time spent on household chores. In the 1950s to the 1970s, most women were secondary earners working mainly as secretaries, teachers, nurses, and librarians (pink-collar jobs). Claudia Goldin and others, specifically point that by the mid-1970s there was a period of revolution of women in the labor force brought on by a source of different factors. Women more accurately planned for their future in the work force, investing in more applicable majors in college that prepared them to enter and compete in the labor market. In the United States, the labor force participation rate rose from approximately 59% in 1948 to 66% in 2005, with participation among women rising from 32% to 59% and participation among men declining from 87% to 73%.

A common theory in modern economics claims that the rise of women participating in the US labor force in the late 1960s was due to the introduction of a new contraceptive technology, birth control pills, and the adjustment of age of majority laws. The use of birth control gave women the flexibility of opting to invest and advance their career while maintaining a relationship. By having control over the timing of their fertility, they were not running a risk of thwarting their career choices. However, only 40% of the population actually used the birth control pill. This implies that other factors may have contributed to women choosing to invest in advancing their careers. One factor may be that more and more men delayed the age of marriage, allowing women to marry later in life without worrying about the quality of older men. Other factors include the changing nature of work, with machines replacing physical labor, eliminating many traditional male occupations, and the rise of the service sector, where many jobs are gender neutral.

Another factor that may have contributed to the trend was the The Equal Pay Act of 1963
Equal Pay Act of 1963
The Equal Pay Act of 1963 is a United States federal law amending the Fair Labor Standards Act, aimed at abolishing wage disparity based on sex . It was signed into law on June 10, 1963 by John F. Kennedy as part of his New Frontier Program...

, which aimed at abolishing wage disparity based on sex. Such legislation diminished sexual discrimination and encouraged more women to enter the labor market by receiving fair remuneration to help raising families and children.

The labor force participation rate can decrease when the rate of growth of the population outweighs that of the employed and unemployed together. The labor force participation rate is a key component in long-term economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

, almost as important as productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...

.

Pop = total population

LF = labor force = U + E

LFpop = labor force population (generally defined as all men and women aged 15-64)

p = participation rate = LF / LFpop

E = number employed

e = rate of employment = E / LF

U = number of unemployed

u = rate of unemployment = U / LF
The labor force participation rate explains how an increase in the unemployment rate can occur simultaneously with an increase in employment. If a large amount of new workers enter the labor force but only a small fraction become employed, then the increase in the number of unemployed workers can outpace the growth in employment.

Individual



Unemployed individuals are unable to earn money to meet financial obligations. Failure to pay mortgage payments or to pay rent may lead to homelessness
Homelessness
Homelessness describes the condition of people without a regular dwelling. People who are homeless are unable or unwilling to acquire and maintain regular, safe, and adequate housing, or lack "fixed, regular, and adequate night-time residence." The legal definition of "homeless" varies from country...

 through foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...

 or eviction
Eviction
How you doing???? Eviction is the removal of a tenant from rental property by the landlord. Depending on the laws of the jurisdiction, eviction may also be known as unlawful detainer, summary possession, summary dispossess, forcible detainer, ejectment, and repossession, among other terms...

. Across the United States the growing ranks of people made homeless in the foreclosure crisis are generating tent cities. Unemployment increases susceptibility to malnutrition, illness, mental stress, and loss of self-esteem
Self-esteem
Self-esteem is a term in psychology to reflect a person's overall evaluation or appraisal of his or her own worth. Self-esteem encompasses beliefs and emotions such as triumph, despair, pride and shame: some would distinguish how 'the self-concept is what we think about the self; self-esteem, the...

, leading to depression
Clinical depression
Major depressive disorder is a mental disorder characterized by an all-encompassing low mood accompanied by low self-esteem, and by loss of interest or pleasure in normally enjoyable activities...

. According to a study published in Social Indicator Research, even those who tend to be optimistic find it difficult to look on the bright side of things when unemployed. Using interviews and data from German participants aged 16 to 94 – including individuals coping with the stresses of real life and not just a volunteering student population – the researchers determined that even optimists struggled with being unemployed.

Dr. M. Brenner conducted a study in 1979 on the "Influence of the Social Environment on Psychology." Brenner found that for every 10% increase in the number of unemployed there is an increase of 1.2% in total mortality, a 1.7% increase in cardiovascular disease
Cardiovascular disease
Heart disease or cardiovascular disease are the class of diseases that involve the heart or blood vessels . While the term technically refers to any disease that affects the cardiovascular system , it is usually used to refer to those related to atherosclerosis...

, 1.3% more cirrhosis
Cirrhosis
Cirrhosis is a consequence of chronic liver disease characterized by replacement of liver tissue by fibrosis, scar tissue and regenerative nodules , leading to loss of liver function...

 cases, 1.7% more suicides, 4.0% more arrests, and 0.8% more assaults reported to the police. A more recent study by Christopher Ruhm on the effect of recessions on health found that several measures of health actually improve during recessions. As for the impact of an economic downturn on crime, during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 the crime rate did not decrease. Because unemployment insurance in the U.S. typically does not replace 50% of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps or accumulating debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...

.

Not everyone suffers equally from unemployment. In a prospective study of 9570 individuals over four years, highly conscientiousness people suffered more than twice as much if they became unemployed. The authors suggested this may be due to conscientious people making different attributions about why they became unemployed, or through experiencing stronger reactions following failure.

Some hold that many of the low-income jobs are not really a better option than unemployment with a welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...

 (with its unemployment insurance benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most low-paying jobs is high.)

Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. Unemployment can cause underemployment
Underemployment
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the...

, and fear of job loss can spur psychological anxiety.

Social


An economy with high unemployment is not using all of the resources, specifically labour, available to it. Since it is operating below its production possibility frontier
Production possibility frontier
In economics, a production–possibility frontier , sometimes called a production–possibility curve or product transformation curve, is a graph that compares the production rates of two commodities that use the same fixed total of the factors of production...

, it could have higher output if all the workforce were usefully employed. However, there is a trade-off between economic efficiency and unemployment: if the frictionally unemployed
Frictional unemployment
Frictional unemployment is the time period between jobs when a worker is searching for, or transitioning from one job to another. It is sometimes called search unemployment and can be voluntary based on the circumstances of the unemployed individual....

 accepted the first job they were offered, they would be likely to be operating at below their skill level, reducing the economy's efficiency.

During a long period of unemployment, workers can lose their skills, causing a loss of human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...

. Being unemployed can also reduce the life expectancy of workers by about 7 years.

High unemployment can encourage xenophobia
Xenophobia
Xenophobia is defined as "an unreasonable fear of foreigners or strangers or of that which is foreign or strange". It comes from the Greek words ξένος , meaning "stranger," "foreigner" and φόβος , meaning "fear."...

 and protectionism
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 as workers fear that foreigners are stealing their jobs. Efforts to preserve existing jobs of domestic and native workers include legal barriers against "outsiders" who want jobs, obstacles to immigration
Immigration
Immigration is the act of foreigners passing or coming into a country for the purpose of permanent residence...

, and/or tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....

s and similar trade barrier
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...

s against foreign competitors.

High unemployment can also cause social problems such as crime; if people don't have as much disposable income as before, then it is very likely that crime levels within the economy will increase.

Socio-political


High levels of unemployment can be causes of civil unrest, in some cases leading to revolution, and particularly totalitarianism
Totalitarianism
Totalitarianism is a political system where the state recognizes no limits to its authority and strives to regulate every aspect of public and private life wherever feasible...

. The fall of the Weimar Republic
Weimar Republic
The Weimar Republic is the name given by historians to the parliamentary republic established in 1919 in Germany to replace the imperial form of government...

 in 1933 and Adolf Hitler's rise to power
Machtergreifung
Machtergreifung is a German word meaning "seizure of power". It is normally used specifically to refer to the Nazi takeover of power in the democratic Weimar Republic on 30 January 1933, the day Hitler was sworn in as Chancellor of Germany, turning it into the Nazi German dictatorship.-Term:The...

, which culminated in World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 and the deaths of tens of millions and the destruction of much of the physical capital of Europe, is attributed to the poor economic conditions in Germany at the time, notably a high unemployment rate of above 20%; see Great Depression in Central Europe
Great Depression in Central Europe
The Great Depression severely affected central Europe. The unemployment rate in Germany, Austria and Poland rose to 20% while output fell by 40%. By November 1932 every European country had increased tariffs or introduced import quotas....

 for details.

Note that the hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 in the Weimar Republic is not directly blamed for the Nazi rise – the Inflation in the Weimar Republic
Inflation in the Weimar Republic
The hyperinflation in the Weimar Republic was a three year period of hyperinflation in Germany between June 1921 and July 1924.- Analysis :...

 occurred primarily in the period 1921–23, which was contemporary with Hitler's Beer Hall Putsch
Beer Hall Putsch
The Beer Hall Putsch was a failed attempt at revolution that occurred between the evening of 8 November and the early afternoon of 9 November 1923, when Nazi Party leader Adolf Hitler, Generalquartiermeister Erich Ludendorff, and other heads of the Kampfbund unsuccessfully tried to seize power...

 of 1923, and is blamed for damaging the credibility of democratic institutions, but the Nazi party only assumed government in 1933, 10 years after the hyperinflation but in the midst of high unemployment.

Rising unemployment has traditionally been regarded by the public and media in any country as a key guarantor of electoral defeat for any government which oversees it. This was very much the consensus in the United Kingdom until 1983, when Margaret Thatcher's
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...

 Conservative
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...

 government won a landslide in the general election
United Kingdom general election, 1983
The 1983 United Kingdom general election was held on 9 June 1983. It gave the Conservative Party under Margaret Thatcher the most decisive election victory since that of Labour in 1945...

 despite overseeing a rise in unemployment from 1,500,000 to 3,200,000 since its election four years earlier
United Kingdom general election, 1979
The United Kingdom general election of 1979 was held on 3 May 1979 to elect 635 members to the British House of Commons. The Conservative Party, led by Margaret Thatcher ousted the incumbent Labour government of James Callaghan with a parliamentary majority of 43 seats...

.

Benefits



The primary benefit of unemployment is that people are available for hire, without being headhunted
Headhunter
Headhunter or head hunter may refer to:-General use:* Headhunting, the practice of literally taking a person's head after killing them* Headhunter, an informal name for an employment recruiter, sometimes referred to as executive searcher...

 away from their existing employers. This permits new and old businesses to take on staff.

Unemployment is argued to be "beneficial" to the people who are not unemployed in the sense that it averts inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

, which itself has damaging effects, by providing (in Marxian
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...

 terms) a reserve army of labour
Reserve army of labour
Reserve army of labour is a concept in Karl Marx's critique of political economy. It refers basically to the unemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for...

, that keeps wages in check. However the direct connection between full local employment and local inflation has been disputed by some due to the recent increase in international trade that supplies low-priced goods even while local employment rates rise to full employment.

The inflation-fighting benefits to the entire economy arising from a presumed optimum level of unemployment has been studied extensively. The Shapiro-Stiglitz model suggests that wages are not bid down sufficiently to ever reach 0% unemployment. This occurs because employers know that when wages decrease, workers will shirk and expend less effort. Employers avoid shirking by preventing wages from decreasing so low that workers give up and become unproductive. These higher wages perpetuate unemployment while the threat of unemployment reduces shirking.

Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve
Phillips curve
In economics, the Phillips curve is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, the lower the unemployment in an economy, the higher the rate of inflation...

, or to decelerate inflation, following the NAIRU/natural rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

 theory, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs.

As in the Marxist theory of unemployment, special interests may also benefit: some employers may expect that employees with no fear of losing their jobs will not work as hard, or will demand increased wages and benefit. According to this theory, unemployment may promote general labour productivity and profitability
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...

 by increasing employers' rationale for their monopsony
Monopsony
In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers...

-like power (and profits).

Optimal unemployment has also been defended as an environmental tool to brake the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment—it reduces the consumption of the unemployed across the board, and only in the short term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption. If so the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.

Some critics of the "culture of work" such as anarchist Bob Black
Bob Black
Bob Black is an American anarchist. He is the author of The Abolition of Work and Other Essays, Beneath the Underground, Friendly Fire, Anarchy After Leftism, and numerous political essays.-Writing:Some of his work from the early 1980s includes...

 see employment as overemphasized culturally in modern countries. Such critics often propose quitting jobs when possible, working less, reassessing the cost of living to this end, creation of jobs which are "fun" as opposed to "work," and creating cultural norms where work is seen as unhealthy. These people advocate an "anti-work
Anti-work
The anti-work ethic states that labor tends to cause unhappiness, and is increasingly challenged by work performed by machines. Therefore, the quantity of labor ought to be lessened...

" ethic for life.

Decline in work hours


As a result of productivity the work week declined considerably over the 19th century. By the 1920s in the U.S. the average work week was 49 hours, but the work week was reduced to 40 hours (after which overtime premium was applied) as part of the National Industrial Recovery Act
National Industrial Recovery Act
The National Industrial Recovery Act , officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 The National Industrial Recovery Act (NIRA), officially known as the Act of June 16, 1933 (Ch. 90, 48 Stat. 195, formerly...

 of 1933. At the time of the Great Depression of the 1930s it was understood that with the enormous productivity gains due to electrification
Electrification
Electrification originally referred to the build out of the electrical generating and distribution systems which occurred in the United States, England and other countries from the mid 1880's until around 1940 and is in progress in developing countries. This also included the change over from line...

, mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...

 and agricultural mechanization, there was no need for a large number of previously employed workers.

Controlling or reducing unemployment


Societies try a number of different measures to get as many people as possible into work, and various societies have experienced close to full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....

 for extended periods, particularly during the Post-World War II economic expansion
Post-World War II economic expansion
The post–World War II economic expansion, also known as the postwar economic boom, the long boom, and the Golden Age of Capitalism, was a period of economic prosperity in the mid 20th century, which occurred mainly in western countries, followed the end of World War II in 1945, and lasted until the...

. The United Kingdom in the 1950s and 60s averaged 1.6% unemployment, while in Australia the 1945 White Paper on Full Employment in Australia
White Paper on Full Employment in Australia
The White Paper Full Employment in Australia was the defining document of economic policy in Australia for the 30 years between 1945 and 1975. For the first time, the Australian government accepted an obligation to guarantee full employment and to intervene as necessary to implement that guarantee...

established a government policy of full employment, which policy lasted until the 1970s when the government ran out of money.

However, mainstream economic
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...

 discussions of full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....

 since the 1970s suggest that attempts to reduce the level of unemployment below the natural rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

 will fail, resulting only in less output and more inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

.

Demand side solutions

United States Families on Relief (in 1,000's)
1936 1937 1938 1939 1940 1941
Workers employed
WPA 1,995 2,227 1,932 2,911 1,971 1,638
CCC and NYA 712 801 643 793 877 919
Other federal work projects 554 663 452 488 468 681
Cases on public assistance
Social security programs 602 1,306 1,852 2,132 2,308 2,517
General relief 2,946 1,484 1,611 1,647 1,570 1,206
Totals
Total families helped 5,886 5,660 5,474 6,751 5,860 5,167
Unemployed workers (BLS) 9,030 7,700 10,390 9,480 8,120 5,560
Coverage (cases/unemployed) 65% 74% 53% 71% 72% 93%

Many countries aid the unemployed through social welfare programs. These unemployment benefits include unemployment insurance, unemployment compensation, welfare and subsidies to aid in retraining. The main goal of these programs is to alleviate short-term hardships and, more importantly, to allow workers more time to search for a job.

A direct demand-side solution to unemployment is government-funded employment of the able-bodied poor. This was notably implemented in Britain from the 17th century until 1948 in the institution of the workhouse
Workhouse
In England and Wales a workhouse, colloquially known as a spike, was a place where those unable to support themselves were offered accommodation and employment...

, which provided jobs for the unemployed with harsh conditions and poor wages to dissuade their use. A modern alternative is a job guarantee
Job guarantee
A job guarantee is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment. Its aim is to create full employment and price stability...

, where the government guarantees work at a living wage. Temporary measures can include public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...

 programs such as the Works Progress Administration
Works Progress Administration
The Works Progress Administration was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects, including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects...

. Government-funded employment is not widely advocated as a solution to unemployment, except in times of crisis; this is attributed to the public sector jobs' existence depending directly on the tax receipts from private sector employment.

In the U.S. the unemployment insurance allowance one receives is based solely on previous income (not time worked, family size, etc.) and usually compensates for one-third of one's previous income. To qualify, one must reside in their respective state for at least a year and, of course, work. The system was established by the Social Security Act of 1935. Although 90% of citizens are covered by unemployment insurance, less than 40% apply for and receive benefits. However, the number applying for and receiving benefits increases during recessions. In cases of highly seasonal industries the system provides income to workers during the off seasons, thus encouraging them to stay attached to the industry.

According to classical economic theory, markets reach equilibrium where supply equals demand; everyone who wants to sell at the market price can. Those who do not want to sell at this price do not; in the labour market this is classical unemployment. Increases in the demand for labour will move the economy along the demand curve, increasing wages and employment. The demand for labour in an economy is derived from the demand for goods and services. As such, if the demand for goods and services in the economy increases, the demand for labour will increase, increasing employment and wages.
Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment.

Supply-side solutions


However, the labour market is not 100% efficient: it does not clear, though it may be more efficient than bureaucracy. Some argue that minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. This assumes perfect competition exists in the labour market, specifically that no single entity is large enough to affect wage levels. Advocates of supply-side policies believe those policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions. Supply-siders argue the reforms increase long-term growth. This increased supply of goods and services requires more workers, increasing employment. It is argued that supply-side policies, which include cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment. Other supply-side policies include education to make workers more attractive to employers.

However, recent meta-analyzes involving many studies refute that there is any statistically significant, negative impact of minimum wages on unemployment. Further, a number of scholars argue that the predicted negative impact is based on incoherent or simplistic logic that ignores mitigating environmental factors, such as non-minimum wage labour markets including farm, service and self employed workers. They argue that the benefits of minimum wage laws outweigh the supposed but unproven costs.

External links





  • In Popular Culture
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      .