Our identities are often strongly linked with what we do to make money, which we commonly
refer to as “jobs.” That’s why when we lose our jobs, it can be a serious personal issue.
For governments, it may become a national crisis if many citizens lose their jobs. In fact,
one of the quickest ways for economists to measure the overall health of an economy
is by tracking the number of people who are out of work. While some unemployment always naturally
occurs, even in a booming economy, high rates of unemployment can be devastating for a society.
In order to determine the unemployment rate, we must first look at the labor force. Again, we will
be looking at how the Bureau of Labor Statistics does this in the United States. As we learned in
the previous tutorial, people who are not included in the labor force include full-time students,
stay-at-home parents, retired people, active military, the institutionalized, and those
who have given up looking for employment for an extended period of time. And so, to calculate
the unemployment rate, you take the number of unemployed divided by the labor force times 100.
For example, if there are 10 million unemployed people in a country and 150 million in the labor
force, you’d have an unemployment rate of 6.67%. However, we must understand that unemployment
can occur for different reasons. Economists generally look at four categories of unemployment:
frictional, structural, cyclical, and seasonal. Frictional unemployment refers to unemployed
people who are looking for jobs for the first time or switching jobs. For example, a college student
might need some time to find the right position after graduating. Take Harriet, for example.
Harriet may have graduated from law school three months ago, but she had to spend that
time interviewing with various law firms to find the one that best suits her needs and interests.
Another example might be someone who had to quit their job to take care of someone else.
Consider Vince. Vince left his sales job two years ago to care for his mother who
has a severe disability, but now he is attempting to return to the workforce.
Structural unemployment refers to jobs becoming outdated or obsolete
due to a company or industry no longer requiring a particular skill set. Structural unemployment
occurs when a worker’s skills simply don’t match the skills needed for the jobs available. For
example, a cashier at a grocery store might lose their job when self-checkout lanes are installed.
This is Roberto. Even though he’s been a cashier for 20 years, his skills are no longer needed as
his role has been automated. Another example might be an American auto company moving its
assembly manufacturing to another country where labor is less expensive. This is Anna.
Anna lost her auto assembly job when her local plant shut down after the company opened a new
one in its place in Mexico. If this becomes widespread among American corporations, Anna’s
skill set is no longer of value in her country. Cyclical unemployment refers to unemployment as
a result of a poor economy. During recessions, or downturns in the business cycle, the demand for
goods and services goes down. This results in less production, and therefore fewer workers are needed
and companies begin to lay off employees. A layoff is a termination of employment for
business reasons. This means it’s not the worker’s fault for losing the job. In fact, many laid-off
employees will be rehired when the recession ends and the business cycle resumes an upward trend.
Seasonal unemployment happens when industries slow down or shut down for a particular season
or make seasonal shifts in their schedules. Some jobs just aren’t applicable all year long.
For example, if you mow lawns in Minnesota, you’d have a hard time finding lawns to mow in January.
Similarly, if you plow snow in Minnesota, you’d have a hard time finding snow to plow
in July. Much seasonal unemployment occurs in fields such as agriculture, due to the timing
of when crops are harvested. And seasons are not always predictable. Heat, cold, rain, and drought
can alter harvest schedules by causing fruits and vegetables to ripen sooner or later than expected.
So that’s a quick introduction to the four types of unemployment: frictional, structural,
cyclical, and seasonal. We must understand that it’s not possible to have zero unemployment,
even when everything is going great. Many economists agree that a healthy economy usually
has an unemployment rate between 4 and 6 percent, although this figure continues to be revised.
This is referred to as full employment, meaning that nearly everyone who wants a job has a job.
However, it’s important to recognize that some workers are forced to take on low-skill, low-wage
jobs even though they are qualified for high-skill jobs, simply because those high-skill jobs
are scarce. They are what economists refer to as underemployed, or working at a job for which they
are overqualified, or working part time when they desire full-time work. There are also discouraged
workers, who have stopped searching for employment altogether. Due to these situations,
the unemployment rate can be misleading. But one thing is certain. Economists greatly rely on
tracking unemployment, as it is a useful indicator for tracking the status of a nation’s economy.