What Is Unemployment?

Definition & Examples of Unemployment

Unemployment occurs when people who are available and looking for work are unable to find employment.

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 people who are temporarily laid off and are waiting to be called back to that job in unemployment statistics.

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.

Originally part of the government's response to the Great Depression, the survey 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.

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

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. Most people leave the labor force when they retire, go to school, have a disability that keeps them from working, or have family responsibilities. The BLS doesn't count people who would like to work but aren't actively looking for work.

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 calls them "marginally attached to the labor force." A subset of the marginally attached is called discouraged workers. They have given up looking because they don't think there are jobs out there for them.

The current unemployment rate is 6.3% as of January 2021, which is 0.4 percentage points lower than December 2020. 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%.

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. It was 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, cause unemployment by replacing worker tasks with machines. 

Jobs outsourcing is also a significant cause of unemployment. It's especially common in IT, call centers, and human resources.

Those who aren't in the labor force aren't considered unemployed. That includes three groups:

  • People who would like work, but haven't looked for it in the last month. They include the "marginally attached," who did look in the past year. They had school, ill health, or transportation problems that kept them from looking in the past month. Others are discouraged workers who don't believe there are any jobs.
  • Those who aren't looking for work, including students, homemakers, and retired people.
  • Anyone younger than 16 is not included in the labor force, even if they are working. 

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.

Consequences of Unemployment

The consequences of unemployment for individuals are financially and emotionally destructive. 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. It can become a downward spiral very quickly. 

Those who are unemployed long term may find their job skills no longer match the requirements of the new jobs being offered. That's called structural unemployment. Many who are facing this type of unemployment are 55 or older. They may 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 individual and economic consequences.