See
also: List of Economic Topics 
UNEMPLOYMENT
- macroeconomics
Unemployment
rates in the United States.
In
economics, a person who is able and willing to work yet is unable to find a paying
job is considered unemployed. The unemployment rate is the number of unemployed
workers divided by the total civilian labor force, which includes both the unemployed
and those with jobs (all those willing and able to work for pay). In practice,
measuring the number of unemployed workers actually seeking work is notoriously
difficult. There are several different methods for measuring the number of unemployed
workers. Each method has its own biases and the different systems make comparing
unemployment statistics between countries, especially those with different systems,
difficult.
The
graph shows the official unemployment rate (as a percentage of the labor force)
in the United States from 1948 to the present (using data supplied by the Bureau
of Labor Statistics). Obviously, different countries have different unemployment
rates: for example, the current unemployment rate in France is 9.7%, significantly
higher than in the U.S. However, the meaning of unemployment rate for those affected
means different things in different countries (depending on their institutions),
so we should be careful in interpreting this contrast.
The
terms unemployment and unemployed are sometimes used to refer to other inputs
to production that are not being fully used -- for example, unemployed capital
goods.
Impact
on society and the economy
Some
of the likely costs of unemployment for society include increased poverty, crime,
political instability, mental health problems, and diminished health standards.
Understanding the forces that create unemployment, and then trying to mitigate
their negative effects to the greatest extent possible, is a central issue in
economics.
Costs
Joblessness
can hit individual job-seekers hard. Lacking a job often means lacking social
contact with fellow employees, a purpose for many hours of the day, and of course,
the ability to pay bills and to purchase both necessities and luxuries. This last
is especially serious for those with family obligations, debts, and/or medical
costs, especially in a country such as the U.S., where the availability of health
insurance is often linked to holding a job. Dr. M. Harvey Brenner, among others,
has shown that increasing unemployment raises the crime rate, the suicide rate,
and encourages bad health.
Because unemployment insurance in the U.S. typically does not even replace 50
percent 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, both formal debt to banks and informal debt to friends and
relatives.
Some
hold that many of the low-income jobs (such as McJobs) aren't really a better
option than unemployment with a welfare state (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 McJobs
is high, in excess of 30%/year.) Unemployment insurance keeps an available supply
of workers for the McJobs, while the employers' choice of management techniques
(low wages and benefits, few chances for advancement) is made with the existence
of unemployment insurance in mind. This combination promotes the existence of
one kind of unemployment, frictional unemployment.
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. That is, unemployment
can cause underemployment (definition 1). This is one of the economic arguments
in favor of having unemployment insurance.
Second,
unemployment makes the employed workers more insecure in their jobs, worrying
about being replaced, as Alan Greenspan of the U.S. Federal Reserve has suggested.
This
feared cost of job loss can spur psychological anxiety, weaken labor unions and
their members' sense of solidarity, encourage greater work-effort and lower wage
demands, and/or abet protectionism. This last means efforts to preserve existing
jobs (of the "insiders") via barriers to entry against "outsiders"
who want jobs, legal obstacles to immigration, and/or tariffs and similar trade
barriers against foreign competitors. The impact of unemployment on the employed
is related to the idea of Marxian unemployment. Finally, the existence of significant
unemployment raises the monopsony power of one's employer: that raises the cost
of quitting one's job and lowers the probability of finding a new source of livelihood.
Finally,
high unemployment implies low real Gross Domestic Product: we are not using our
resources as completely as possible and are thus wasting our opportunities to
produce goods and services that allow people to survive and to enjoy life. Much
unemployment — called deficient-demand or cyclical unemployment — thus
represents a profound form of inefficiency, sometimes called "Keynesian inefficiency."
(However, this loss of production might instead be caused by classical unemployment
or Marxian unemployment, which reduce potential output by restricting supply.)
Okun's Law tells us that for the U.S., the economy misses out on about two percent
of its potential output for each one percentage point of unemployment above the
"full employment" unemployment rate or NAIRU (see below). Alternatively,
this "law" says that as unemployment rises by one percentage point,
say from 5% to 6% of the civilian labor force, the percentage of potential output
that could have been produced but was not rises by about two points.
Benefits
Benefits
for the entire economy arising from unemployment include that it keeps inflation
from being high, following the Phillips curve, or from accelerating, following
the NAIRU/natural rate of unemployment theory. As in the Marxian theory of unemployment,
special interests may also benefit: employers often like having their employees
in fear of losing their jobs, and thus working hard, keeping their wage demands
low, etc. As noted, unemployment may increase employers' monopsony power. Unemployment
may thus promote labor productivity and profitability.
Some
say that slow economic growth and the resulting unemployment are actually good,
since the constantly needed growth of the GDP cannot be sustained forever, given
resource constraints and environmental impacts. But others ask if is it fair to
burden the unemployed (usually those at the bottom of the economic heap) with
the costs of limiting the use of resources and the abuse of the environment. This
suggests that we should seek ways to improve the efficiency of our resource management
and environmental stewardship to attain growth and low unemployment in order to
make sure that the burdens are distributed fairly.
Causes
of Unemployment
Capitalism
and Unemployment
Open
unemployment of the sort defined above is associated with capitalist economies.
Preliterate ("primitive") communities treat their members as parts of
an extended family and thus do not allow them to be unemployed — in the effort
to preserve the group. In precapitalist societies such as European feudalism,
the serfs (though clearly dominated and exploited by the lords) were never "unemployed"
because they had direct access to the land (and the needed tools) and could thus
work to produce crops. Just as on the American frontier during the 19th century,
there were day laborers and subsistence farmers on poor land, whose position in
society was somewhat analogous to the unemployed of today. But they were not truly
unemployed, since they could find work and support themselves on the land.
Under
both ancient and modern systems of slave-labor, slave-owners never let their property
be unemployed for long. (If anything, they would sell the unneeded laborer.) Planned
economies (often called "communist countries") such as the old Soviet
Union or today's Cuba typically provide occupation for everyone, using substantial
overstaffing if necessary. (This is called "hidden unemployment," which
is sometimes seen as a kind of underemployment, definition 3.) Workers' cooperatives
— such as those producing plywood in the U.S. Pacific Northwest — do
not let their members become unemployed unless the co-op itself goes bankrupt.
On
the other hand, under capitalism the individual profit-seeking employer does not
have to bear the complete social costs of laying off or firing workers, so they
are willing to live with (or even profit from) the existence of unemployment —
unless employees are able to win good severance packages or protection from the
government (such as restrictions on firing and lay-offs). (That is, there is a
market failure due to the existence of external costs of firing or laying-off
of people.) On the "supply side," workers' lack of significantly positive
net worth (beyond equity in a home or a car) makes it very difficult for them
to go into business for themselves to avoid unemployment. Economist Edward Wolff
(http://www.econ.nyu.edu/user/wolffe/) estimates that in 1995 in the U.S., families
with adults aged 25-45 in the middle income quintile could sustain their current
consumption for only 1.2 months (or live at 125% of the poverty standard for 1.8
months) based on their financial reserves. Poorer quintiles of course had more
difficulty.
Debate
on Unemployment
There
is considerable debate amongst economists as to what the main causes of unemployment
are. Keynesian economics emphasizes unemployment resulting from insufficient effective
demand for goods and service in the economy (cyclical unemployment). Others point
to structural problems (inefficiencies) inherent in labor markets (structural
unemployment). Classical or neoclassical economics tends to reject these explanations,
and focuses more on rigidities imposed on the labour market from the outside,
such as minimum wage laws, taxes, and other regulations that may discourage the
hiring of workers (classical unemployment). Yet others see unemployment as largely
due to voluntary choices by the unemployed (frictional unemployment). On the other
extreme, Marxists see unemployment as a structural fact helping to preserve business
profitability and capitalism (Marxian unemployment). The different perspectives
may be right in different ways, contributing to our understanding of different
types of unemployment.
Though
there have been several definitions of voluntary (and involuntary) unemployment
in the economics literature, a simple distinction is often applied. Voluntary
unemployment is blamed on the individual unemployed workers (and their decisions),
whereas involuntary unemployment exists because of the socio-economic environment
(including the market structure and the level of aggregate demand) in which individuals
operate. (As is usual in economics, the sociological or social-psychological factors
that help determine individual choices are ignored here.) In these terms, much
or most of frictional unemployment is voluntary, since it reflects individual
search behavior. On the other hand, cyclical unemployment, structural unemployment,
classical unemployment, and Marxian unemployment are largely involuntary in nature.
However, the existence of structural unemployment may reflect choices made by
the unemployed in the past, while classical unemployment may result from the legislative
and economic choices made by labor unions and/or political parties aiming to help
workers. 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, there would be unemployed
workers. This is the case of cyclical unemployment and Marxian unemployment, for
which macroeconomic forces lead to microeconomic unemployment.
For
more details, see unemployment types.
Measuring
unemployment
The
U.S. Bureau of Labor Statistics (BLS) provides some definitions which are similar
to, but not the same as, those of other countries.
BLS
definitions
The
BLS counts employment and unemployment (of those over 16 years of age) using a
sample survey of households.[5] (http://www.bls.gov/cps/cps_faq.htm) In BLS definitions,
people are considered employed if they did any work at all for pay or profit during
the survey week. This includes not only regular full-time year-round employment
but also all part-time and temporary work. Workers are also counted as "employed"
if they have a job at which they did not work during the survey week because they
were:
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