What Is Unemployment?

Definition and Examples of Unemployment

Unemployment is the term used to refer to the number of people who are available and looking for work but are unable to find a job. It impacts not only individuals, but also communities, regions, and the overall economy.

What Is Unemployment?

You're considered to be unemployed when you can work and you want to work, but you can't find a suitable job. Unemployment is a term used to quantify or measure a group of unemployed people. 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, part of the monthly jobs report. It measures unemployment through monthly household surveys referred to as 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 it's been modified several times since then.

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.

A major redesign occurred in 1994. 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. Businesses are forced to cut costs by reducing payroll expenses as the economy slows.

The COVID-19 outbreak has resulted in higher employment rates than the Great Recession of 2007 through 2009. It's closer to the unemployment rates experienced during the Great Depression. The history of recessions reveals that an increase in the unemployment rate has always accompanied them.

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.

There are several different sub-types of unemployment. It's referred to as technological unemployment when technology replaces people and causes unemployment.

The unemployment rate was 4.8% in September 2021, which is 0.4 percentage points lower than it was in August 2021. It had skyrocketed to 14.8% back in April 2020 due to the COVID-19 outbreak, and it remained in the double digits through July 2020. The unemployment rate was 3.5% in February 2020, before the pandemic became prevalent in the U.S.

Unemployment isn't evenly distributed among the population. The rate of unemployment can 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 being unemployed. It excludes those who haven't looked for work within the last four weeks. The BLS also removes them from the labor force, which includes both the employed and unemployed.

Most people who voluntarily leave the labor force might 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 include in the labor force those people who would like to work but aren't actively looking for work. They may have stopped looking due to school, health problems, transportation issues, or a lack of available jobs. But the BLS does track these 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." "Discouraged workers" are a subset of the marginally attached. They've 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're working.

Consequences of Unemployment

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

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

Lower consumer spending reduces business revenue, and this forces companies to cut more payroll to reduce their costs. It can contribute to a downward economic spiral.

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

It can deepen a recession or depression when high national unemployment continues.

Key Takeaways

  • Unemployment occurs when someone is able to work and wants to work, but is unable to find employment. 
  • The Bureau of Labor Statistics (BLS) specifically defines unemployment as those who don't have a job but are available for work and have looked for work in the past four weeks. 
  • Unemployment on a national level 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.