What Is Unemployment?

Definition and Examples of Unemployment

Unemployment occurs when people who are available and looking for work are unable to find a job. It impacts not only individuals, but also communities, regions, and the overall economy.

Learn more about unemployment, how it works, and its causes and consequences.

What Is Unemployment?

Unemployment is when someone could work and wants to work but is unable to find a suitable job. The U.S. Bureau of Labor Statistics (BLS) has a more specific definition: people who don't have a job, have actively looked for work in the past four weeks, and currently are available for work.

The BLS also includes in unemployment statistics people who are temporarily laid off and are waiting to be called back to their job.

The BLS reports unemployment statistics in its U-3 report, a part of the monthly jobs report. It measures unemployment through monthly household surveys called the Current Population Survey, which has been conducted every month since 1940. It was originally part of the government's response to the Great Depression and has been modified several times since then.

In 1994, a major redesign occurred. The questionnaire was revamped, and computer-assisted interviewing was used. Some of the labor force concepts were also revised.

How Unemployment Works

Economic slowdowns are the primary cause of unemployment on a national level. As the economy slows, businesses are forced to cut costs by reducing payroll expenses.

For example, the COVID-19 outbreak has resulted in higher employment rates than the Great Recession of 2007-2009, closer to unemployment rates in the Great Depression. The history of recessions reveals that they always cause an increase in unemployment rates.

Competition in particular industries or companies can also cause unemployment. Advanced technology, such as computers or robots, can cause unemployment by replacing worker tasks with machines. 

The BLS doesn't count residents of any institution as unemployed, including prisons, jails, mental facilities, and homes for the aged. It also doesn't count those on active military duty.

The current unemployment rate was 5.9% as of June 2021, which is 0.1 percentage point higher than it was in May 2021. It had skyrocketed to 14.8% in April 2020 due to the COVID-19 outbreak and remained in the double digits through July 2020. In February 2020, before the pandemic became prevalent in the U.S., the unemployment rate was 3.5%.

Unemployment is not evenly distributed among the population. The rate of unemployment may be higher or lower for certain groups, depending on multiple factors, including:

  • Region
  • Industry
  • Gender
  • Race
  • Socioeconomic class

Types of Unemployment

The BLS doesn't count everyone who is jobless as unemployed. It excludes those who haven't looked for work within the past four weeks. The BLS also removes them from the labor force, which is made up of the employed and unemployed.

This infographic explains how the Bureau of Labor Statistics defines unemployment.
Daniel Fishel / The Balance

Most people who voluntarily leave the labor force do so because of:

  • Retirement
  • A disability that keeps them from working
  • School
  • Family responsibilities
  • Lack of need or interest in working

The BLS also doesn't count people who would like to work but aren't actively looking for work in the labor force. They may have stopped looking for work due to school, health problems, transportation problems, or a lack of available jobs. However, the BLS does track those people in the U-6 unemployment rate. Some people call this the "real unemployment rate." It includes those who have looked for work within the past 12 months but not within the past four weeks.

The BLS identifies people in this group as "marginally attached to the labor force." A subset of the marginally attached are called "discouraged workers." They have given up looking because they don't think there are jobs out there for them.

Anyone younger than age 16 is not included in the American labor force, even if they are working. 

Consequences of Unemployment

The consequences of unemployment for individuals are financially and emotionally destructive. Long-term unemployment can lead to financial instability or poverty, which can also cause physical and mental health problems.

The consequences can also be harmful to the economy if unemployment rises above 5% or 6%. When that many people are unemployed, the economy loses one of its key drivers of growth: consumer spending. Quite simply, workers have less money to spend until they find another job.

Lower consumer spending from unemployed workers reduces business revenue, which forces companies to cut more payroll to reduce their costs. That can cause a downward economic spiral.

Those who are unemployed long-term may find that their job skills no longer match the requirements of the new jobs being offered. That's called "structural unemployment." Many who are facing that type of unemployment are age 55 or older. They might not be able to get a good job again, despite laws prohibiting age discrimination. They may get part-time or low-paying entry-level jobs to make ends meet, then become unemployed again until they can take early Social Security benefits at age 62.

If high national unemployment continues, it can deepen a recession or even cause a depression.

Key Takeaways

  • Unemployment occurs when someone could work, and wants to work, but is unable to find employment. 
  • The Bureau of Labor Statistics (BLS) has a specific definition of unemployment: those who don't have a job but are available for work and have looked for work in the past four weeks. 
  • On a national level, unemployment is caused by a slowing economy. Competition in particular industries, advancing technology, and outsourcing can also cause unemployment. 
  • Unemployment has both individual and broader economic consequences.