Unemployment

From Wikipedia, the free encyclopedia

For payments paid to unemployed people, see unemployment benefits.

Unemployed men outside a soup kitchen in Depression-era Chicago, 1931.

Unemployment (or joblessness) occurs when people are without work and actively seeking work.
[1]
The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a
percentage by dividing the number of unemployed individuals by all individuals currently in the labor
force. During periods of recession, an economy usually experiences a relatively high unemployment
rate.[2] According to International Labour Organization report, more than 197 million people globally
or 6% of the world's workforce were without a job in 2012.[3]
There remains considerable theoretical debate regarding the causes, consequences and solutions
for unemployment. Classical economics, New classical economics, and the Austrian School of
economics argue that market mechanisms are reliable means of resolving unemployment. These
theories argue against interventions imposed on the labor market from the outside, such as
unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations that they
claim discourage the hiring of workers.
Keynesian economics emphasizes the cyclical nature of unemployment and recommends
government interventions in the economy that it claims will reduce unemployment during recessions.
This theory focuses on recurrent shocks that suddenly reduce aggregate demand for goods and
services and thus reduce demand for workers. Keynesian models recommend government
interventions designed to increase demand for workers; these can include financial stimuli, publicly
funded job creation, and expansionist monetary policies. Keynes believed that the root cause of
unemployment is the desire of investors to receive more money rather than produce more products,
which is not possible without public bodies producing new money.[4]
In addition to these comprehensive theories of unemployment, there are a few categorizations of
unemployment that are used to more precisely model the effects of unemployment within the
economic system. The main types of unemployment include structural unemployment which focuses
on structural problems in the economy and inefficiencies inherent in labour markets, including a
mismatch between the supply and demand of laborers with necessary skill sets. Structural
arguments emphasize causes and solutions related to disruptive technologies and globalization.
Discussions of frictional unemployment focus on voluntary decisions to work based on each
individuals' valuation of their own work and how that compares to current wage rates plus the time
and effort required to find a job. Causes and solutions for frictional unemployment often address job
entry threshold and wage rates. Behavioral economists highlight individual biases in decision
making, and often involve problems and solutions concerning sticky wages andefficiency wages.
Contents
[hide]

1 Definitions, types, and theories

o

1.1 Classical unemployment

1.2 Cyclical unemployment

1.3 Marxian theory of unemployment

1.4 Full employment

1.5 Structural unemployment

1.6 Frictional unemployment

1.7 Hidden unemployment

1.8 Long-term unemployment

2 Measurement
o

2.1 European Union (Eurostat)

2.2 United States Bureau of Labor statistics

2.3 Alternatives

2.3.1 Limitations of the unemployment definition

2.3.2 Labor force participation rate

2.3.3 Unemployment ratio

3 Effects
o

3.1 Costs

3.1.1 Individual

3.1.2 Social

3.1.3 Socio-political

3.2 Benefits

3.3 Decline in work hours

4 Controlling or reducing unemployment

o

4.1 Demand-side solutions

4.2 Supply-side solutions

5 History
o

5.1 Industrial Revolution to late 19th century

5.2 20th century

5.3 Great Depression

5.4 21st century

6 See also

7 References

8 Further reading

9 External links

Definitions, types, and theories[edit]

Economists distinguish between various overlapping types of and theories of unemployment,
including cyclical or Keynesian unemployment, frictional unemployment,structural
unemployment and classical unemployment. Some additional types of unemployment that are
occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden
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 attributed to
the individual's decisions, whereas involuntary unemployment exists because of the socio-economic
environment (including the market structure, government intervention, and the level of aggregate
demand) in which individuals operate. In these terms, much or most of frictional unemployment is
voluntary, since it reflects individual search behavior. Voluntary unemployment includes workers who
reject low wage jobs whereas involuntary unemployment includes workers fired due to an economic
crisis, industrial decline, company bankruptcy, or organizational restructuring.
On the other hand, cyclical unemployment, structural unemployment, and classical unemployment
are largely involuntary in nature. However, the existence of structural unemployment may reflect
choices made by the unemployed in the past, while classical (natural) unemployment may result
from the legislative and economic choices made by labour unions or political parties. 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, some unemployed workers would still remain. This happens with cyclical unemployment, as
macroeconomic forces cause microeconomic unemployment which can boomerang back and
exacerbate these macroeconomic forces.

Classical unemployment[edit]
Classical or real-wage unemployment occurs when real wages for a job are set above the marketclearing level, causing the number of job-seekers to exceed the number of vacancies.
Many economists have argued that unemployment increases with increased governmental
regulation.[citation needed] For example, minimum wage laws raise the cost of some low-skill laborers above
market equilibrium, resulting in increased unemployment as people who wish to work at the going
rate cannot (as the new and higher enforced wage is now greater than the value of their labor). [5]
[6]
Laws restricting layoffs may make businesses less likely to hire in the first place, as hiring
becomes more risky.[6]

However, this argument overly simplifies the relationship between wage rates and unemployment,
ignoring numerous factors, which contribute to unemployment.[7][8][9][10][11]Some, such as Murray
Rothbard, suggest that even social taboos can prevent wages from falling to the market-clearing
level.[12]
In Out of Work: Unemployment and Government in the Twentieth-Century America,
economists Richard Vedder and Lowell Gallaway argue that the empirical record of wages rates,
productivity, and unemployment in American validates classical unemployment theory. Their data
shows a strong correlation between adjusted real wage and unemployment in the United States from
1900 to 1990. However, they maintain that their data does not take into account exogenous events.
[13]

Cyclical unemployment[edit]

The IS-LM Model is used to analyze the effect of demand shocks on the economy.

Cyclical, deficient-demand, or Keynesian unemployment, occurs when there is not enough

aggregate demand in the economy to provide jobs for everyone who wants to work. Demand for
most goods and services falls, less production is needed and consequently fewer workers are
needed, wages are sticky and do not fall to meet the equilibrium level, and mass unemployment
results.[14] Its name is derived from the frequent shifts in the business cycle although unemployment
can also be persistent as occurred during the Great Depression of the 1930s.
With cyclical unemployment, the number of unemployed workers exceeds the number of job
vacancies, so that even if full employmentwere attained and all open jobs were filled, some workers
would still remain unemployed. Some associate cyclical unemployment with frictional unemployment
because the factors that cause the friction are partially caused by cyclical variables. For example, a
surprise decrease in the money supply may shock rational economic factors and suddenly inhibit
aggregate demand.
Keynesian economists on the other hand see the lack of demand for jobs as potentially resolvable
by government intervention. One suggested interventions involves deficit spending to boost
employment and demand. Another intervention involves an expansionarymonetary policy that
increases the supply of money which should reduce interest rates which should lead to an increase
in non-governmental spending.[15]

Marxian theory of unemployment[edit]

It is in the very nature of the capitalist mode of production to overwork some workers while keeping the
rest as a reserve army of unemployed paupers.
Marx, Theory of Surplus Value, [16]

Marxists also share the Keynesian viewpoint of the relationship between economic demand and
employment, but with the caveat that the market system's propensity to slash wages and reduce
labor participation on an enterprise level causes a requisite decrease in aggregate demand in the
economy as a whole, causing crises of unemployment and periods of low economic activity before
the capital accumulation (investment) phase of economic growth can continue.
According to Karl Marx, unemployment is inherent within the unstable capitalist system and periodic
crises of mass unemployment are to be expected. The function of theproletariat within the capitalist
system is to provide a "reserve army of labour" that creates downward pressure on wages. This is
accomplished by dividing the proletariat into surplus labour (employees) and under-employment
(unemployed).[17] This reserve army of labour fight among themselves for scarce jobs at lower and
lower wages.
At first glance, unemployment seems inefficient since unemployed workers do not increase profits.
However, unemployment is profitable within the global capitalist system because unemployment
lowers wages which are costs from the perspective of the owners. From this perspective low wages
benefit the system by reducing economic rents. Yet, it does not benefit workers. Capitalist systems
unfairly manipulate the market for labour by perpetuating unemployment which lowers laborers'
demands for fair wages. Workers are pitted against one another at the service of increasing profits
for owners.
According to Marx, the only way to permanently eliminate unemployment would be to abolish
capitalism and the system of forced competition for wages and then shift to a socialist or communist
economic system. For contemporary Marxists, the existence of persistent unemployment is proof of
the inability of capitalism to ensure full employment. [18]

Full employment[edit]
Main article: Full employment

Short-Run Phillips Curve before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU). Note,
however, that the unemployment rate is an inaccurate predictor of inflation in the long term.[19][20]

In demand-based theory, it is possible to abolish cyclical unemployment by increasing the aggregate

demand for products and workers. However, eventually the economy hits an "inflation barrier"
imposed by the four other kinds of unemployment to the extent that they exist. Historical experience
suggests that low unemployment affects inflation in the short term but not the long term. [19] In the long
term, thevelocity of money supply measures such as the MZM ("money zero maturity," representing
cash and equivalent demand deposits) velocity is far more predictive of inflation than low
unemployment.[20][21]
Some demand theory economists see the inflation barrier as corresponding to the natural rate of
unemployment. The "natural" rate of unemployment is defined as the rate of unemployment that

exists when the labour market is in equilibrium and there is pressure for neither rising inflation rates
nor falling inflation rates. An alternative technical term for this rate is the NAIRU or the NonAccelerating Inflation Rate of Unemployment. No matter what its name, demand theory holds that
this means that if the unemployment rate gets "too low," inflation will accelerate in the absence of
wage and price controls (incomes policies).
One of the major problems with the NAIRU theory is that no one knows exactly what the NAIRU is
(while it clearly changes over time).[19]The margin of error can be quite high relative to the actual
unemployment rate, making it hard to use the NAIRU in policy-making.[20]
Another, normative, definition of full employment might be called the ideal unemployment rate. It
would exclude all types of unemployment that represent forms of inefficiency. This type of "full
employment" unemployment would correspond to only frictional unemployment (excluding that part
encouraging the McJobs management strategy) and would thus be very low. However, it would be
impossible to attain this full-employment target using only demand-side Keynesian stimulus without
getting below the NAIRU and causing accelerating inflation (absent incomes policies). Training
programs aimed at fighting structural unemployment would help here.
To the extent that hidden unemployment exists, it implies that official unemployment statistics
provide a poor guide to what unemployment rate coincides with "full employment". [19]

Structural unemployment[edit]
Main article: Structural unemployment

Okun's Law interprets unemployment as a function of the rate of growth in GDP.

Structural unemployment occurs when a labour market is unable to provide jobs for everyone who
wants one because there is a mismatch between the skills of the unemployed workers and the skills
needed for the available jobs. Structural unemployment is hard to separate empirically from frictional
unemployment, except to say that it lasts longer. As with frictional unemployment, simple demandside stimulus will not work to easily abolish this type of unemployment.
Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an
economy suffers from long-lasting low aggregate demand, it means that many of the unemployed
become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete.
Problems with debt may lead to homelessness and a fall into the vicious circle of poverty.
This means that they may not fit the job vacancies that are created when the economy recovers. The
implication is that sustained highdemand may lower structural unemployment. This theory of
persistence in structural unemployment has been referred to as an example of path dependence or
"hysteresis".
Much technological unemployment,[22] due to the replacement of workers by machines, might be
counted as structural unemployment. Alternatively, technological unemployment might refer to the
way in which steady increases in labour productivity mean that fewer workers are needed to produce
the same level of output every year. The fact that aggregate demand can be raised to deal with this
problem suggests that this problem is instead one of cyclical unemployment. As indicated by Okun's

Law, the demand side must grow sufficiently quickly to absorb not only the growing labour force but
also the workers made redundant by increased labour productivity.
Seasonal unemployment may be seen as a kind of structural unemployment, since it is a type of
unemployment that is linked to certain kinds of jobs (construction work, migratory farm work). The
most-cited official unemployment measures erase this kind of unemployment from the statistics
using "seasonal adjustment" techniques. This results in substantial, permanent structural
unemployment.

Frictional unemployment[edit]
Main article: Frictional unemployment

The Beveridge curve of 2004 job vacancy and unemployment rate from the United States Bureau of Labour
Statistics.

Frictional unemployment is the time period between jobs when a worker is searching for, or
transitioning from one job to another. It is sometimes called search unemployment and can be
voluntary based on the circumstances of the unemployed individual. Frictional unemployment is
always present in an economy, so the level of involuntary unemployment is properly the
unemployment rate minus the rate of frictional unemployment, which means that increases or
decreases in unemployment are normally under-represented in the simple statistics. [23]
Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch
can result between the characteristics of supply and demand. Such a mismatch can be related to
skills, payment, work-time, location, seasonal industries, attitude, taste, and a multitude of other
factors. New entrants (such as graduating students) and re-entrants (such as former homemakers)
can also suffer a spell of frictional unemployment.
Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually
not right away; they will invest some time and effort to find a better match. This is in fact beneficial to
the economy since it results in a better allocation of resources. However, if the search takes too long
and mismatches are too frequent, the economy suffers, since some work will not get done.
Therefore, governments will seek ways to reduce unnecessary frictional unemployment through
multiple means including providing education, advice, training, and assistance such asdaycare
centers.
The frictions in the labour market are sometimes illustrated graphically with a Beveridge curve, a
downward-sloping, convex curve that shows a correlation between the unemployment rate on one
axis and the vacancy rate on the other. Changes in the supply of or demand for labour cause
movements along this curve. An increase (decrease) in labour market frictions will shift the curve
outwards (inwards).

Hidden unemployment[edit]
Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in
official unemployment statistics, due to the way the statistics are collected. In many countries only

those who have no work but are actively looking for work (and/or qualifying for social security
benefits) are counted as unemployed. Those who have given up looking for work (and sometimes
those who are on Government "retraining" programs) are not officially counted among the
unemployed, even though they are not employed.
The statistic also does not count the "underemployed" those working fewer hours than they would
prefer or in a job that doesn't make good use of their capabilities. In addition, those who are of
working age but are currently in full-time education are usually not considered unemployed in
government statistics. Traditional unemployed native societies who survive by gathering, hunting,
herding, and farming in wilderness areas, may or may not be counted in unemployment statistics.
Official statistics often underestimate unemployment rates because of hidden unemployment.

Long-term unemployment[edit]
This is defined in European Union statistics, as unemployment lasting for longer than one year. The
United States Bureau of Labor Statistics (BLS), which reports current long-term unemployment rate
at 1.9 percent, defines this as unemployment lasting 27 weeks or longer. Long-term unemployment
is a component of structural unemployment, which results in long-term unemployment existing in
every social group, industry, occupation, and all levels of education. [24] Current long- term
unemployment is a result of a 6 year period of weak business hiring, which is the cause of an
aggregate demand shortfall. Another factor of current long-term unemployment is the stigma
attached to it that makes it harder for people seeking jobs to find employment in low and medium
skill jobs because those employers care about long-term unemployment, while high skill jobs mainly
focus on an applicants past experiences instead of their long-term unemployment. [25] In response to
current rates of long-term unemployment in the United States, which accounts for 31.9% of total
unemployment, President Barack Obama implemented policies in January 2014 to assist those who
desire to re-enter the work place but are struggling. As of October 15, 2014, the Department of
Labor's H-1B funds are providing 23 grants, a total of $170 million, for programs in 20 states and
Puerto Rico to help the long-term unemployed re-enter the workforce. The grants were divided
between non-profits, local government, and employers to train and match long-term unemployed job
seekers for in-demand jobs. The Obama Administration announced a call to action for over 300
businesses to implement best practices for hiring and recruiting the long-term unemployed to provide
these candidates an equal chance throughout the hiring process. Along with businesses, the Office
of Personnel Management is providing guidance to Federal agencies to establish a trend of fair
treatment and consideration for people who are long-term unemployed candidates applying for
employment by Federal agencies.[26]

Measurement[edit]
There are also different ways national statistical agencies measure unemployment. These
differences may limit the validity of international comparisons of unemployment data. [27]To some
degree these differences remain despite national statistical agencies increasingly adopting the
definition of unemployment by the International Labour Organization.[28]To facilitate international
comparisons, some organizations, such as the OECD, Eurostat, and International Labor
Comparisons Program, adjust data on unemployment for comparability across countries.
Though many people care about the number of unemployed individuals, economists typically focus
on the unemployment rate. This corrects for the normal increase in the number of people employed
due to increases in population and increases in the labour force relative to the population. The
unemployment rate is expressed as a percentage, and is calculated as follows:

As defined by the International Labour Organization, "unemployed

workers" are those who are currently not working but are willing and
able to work for pay, currently available to work, and have actively
searched for work.[29] Individuals who are actively seeking job
placement must make the effort to: be in contact with an employer,
have job interviews, contact job placement agencies, send out
resumes, submit applications, respond to advertisements, or some
other means of active job searching within the prior four weeks.
Simply looking at advertisements and not responding will not count
as actively seeking job placement. Since not all unemployment may
be "open" and counted by government agencies, official statistics on
unemployment may not be accurate.[30] In the United States, for
example, the unemployment rate does not take into consideration
those individuals who are not actively looking for employment, such
as those still attending college.[31]
The ILO describes 4 different methods to calculate the
unemployment rate:[32]

Labour Force Sample Surveys are the most preferred method

of unemployment rate calculation since they give the most
comprehensive results and enables calculation of
unemployment by different group categories such as race and
gender. This method is the most internationally comparable.

Official Estimates are determined by a combination of

information from one or more of the other three methods. The
use of this method has been declining in favor of Labour
Surveys.

Social Insurance Statistics such as unemployment benefits, are

computed base on the number of persons insured representing
the total labour force and the number of persons who are
insured that are collecting benefits. This method has been
heavily criticized due to the expiration of benefits before the
person finds work.

Employment Office Statistics are the least effective being that

they only include a monthly tally of unemployed persons who
enter employment offices. This method also includes
unemployed who are not unemployed per the ILO definition.

The primary measure of unemployment, U3, allows for comparisons

between countries. Unemployment differs from country to country
and across different time periods. For example, during the 1990s
and 2000s, the United States had lower unemployment levels than
many countries in the European Union,[33] which had significant
internal variation, with countries like the UK
and Denmark outperforming Italy and France. However, large
economic events such as the Great Depression can lead to similar
unemployment rates across the globe.

European Union (Eurostat)[edit]

Further information: List of sovereign states in Europe by

unemployment rate

Unemployment in the regions of the European Union in 2010, according to

Eurostat.

Unemployment rates from 19932009 for United States and European

Union.

Eurostat, the statistical office of the European Union, defines

unemployed as those persons age 15 to 74 who are not working,
have looked for work in the last four weeks, and ready to start work
within two weeks, which conform to ILO standards. Both the actual
count and rate of unemployment are reported. Statistical data are
available by member state, for the European Union as a whole
(EU27) as well as for the euro area (EA16). Eurostat also includes a
long-term unemployment rate. This is defined as part of the
unemployed who have been unemployed for an excess of 1 year.[34]
The main source used is the European Union Labour Force Survey
(EU-LFS). The EU-LFS collects data on all member states each
quarter. For monthly calculations, national surveys or national
registers from employment offices are used in conjunction with
quarterly EU-LFS data. The exact calculation for individual
countries, resulting in harmonized monthly data, depend on the
availability of the data.[35]

United States Bureau of Labor statistics[edit]

See also: Unemployment in the United States

Unemployment rate in the U.S. by county in 2008.[36]

1.23%
3.14%
4.15%

5.16%
6.17%
7.18%

8.19%
9.110%
10.111%

11.113%
13.122.9%

The Bureau of Labor Statistics measures employment and

unemployment (of those over 15 years of age) using two different
labour force surveys[37] conducted by the United States Census
Bureau (within the United States Department of Commerce) and/or
the Bureau of Labor Statistics (within the United States Department
of Labor) that gather employment statistics monthly. The Current
Population Survey(CPS), or "Household Survey", conducts a survey
based on a sample of 60,000 households. This Survey measures
the unemployment rate based on the ILO definition.[38]
The Current Employment Statistics survey (CES), or "Payroll
Survey", conducts a survey based on a sample of 160,000
businesses and government agencies that represent 400,000
individual employers.[39] This survey measures only civilian
nonagricultural employment; thus, it does not calculate an
unemployment rate, and it differs from the ILO unemployment rate
definition. These two sources have different classification criteria,
and usually produce differing results. Additional data are also
available from the government, such as the unemployment
insurance weekly claims report available from the Office of
Workforce Security, within the U.S. Department of Labor
Employment & Training Administration.[40] The Bureau of Labor
Statistics provides up-to-date numbers via a PDF linked here. [41] The
BLS also provides a readable concise current Employment Situation
Summary, updated monthly.[42]

U1U6 from 19502010, as reported by the Bureau of Labor Statistics

The Bureau of Labor Statistics also calculates six alternate

measures of unemployment, U1 through U6, that measure different
aspects of unemployment:[43]

U1:[44] Percentage of labor force unemployed 15 weeks or

longer.

U2: Percentage of labor force who lost jobs or completed

temporary work.

U3: Official unemployment rate per the ILO definition occurs

when people are without jobs and they have actively looked
for workwithin the past four weeks.[1]

U4: U3 + "discouraged workers", or those who have stopped

looking for work because current economic conditions make
them believe that no work is available for them.

U5: U4 + other "marginally attached workers", or "loosely

attached workers", or those who "would like" and are able to
work, but have not looked for work recently.

U6: U5 + Part-time workers who want to work full-time, but

cannot due to economic reasons (underemployment).

Note: "Marginally attached workers" are added to the total labour

force for unemployment rate calculation for U4, U5, and
U6. The BLS revised the CPS in 1994 and among the changes the
measure representing the official unemployment rate was renamed
U3 instead of U5.[45] In 2013, Representative Hunter proposed that
the Bureau of Labor Statistics use the U5 rate instead of the current
U3 rate.[46]
Statistics for the U.S. economy as a whole hide variations among
groups. For example, in January 2008 U.S. unemployment rates
were 4.4% for adult men, 4.2% for adult women, 4.4% for
Caucasians, 6.3% for Hispanics or Latinos (all races), 9.2% for
African Americans, 3.2% for Asian Americans, and 18.0% for
teenagers.[39] Also, the U.S. unemployment rate would be at least
2% higher if prisoners and jail inmates were counted. [47][48]
The unemployment rate is included in a number of major
economic indexes including the United States' Conference
Board's Index of Leading Indicators a macroeconomic measure of
the state of the economy.

Estimated U.S. Unemployment rate from 18001890. All data are estimates
based on data compiled by Lebergott.[49] See limitations section below
regarding how to interpret unemployment statistics in self-employed,
agricultural economies. See image info for complete data.

Estimated U.S. Unemployment rate from 18902011. 18901930 data are

from Romer.[50] 19301940 data are from Coen.[51] 19402011 data are
from Bureau of Labor Statistics.[52][53] See image info for complete data.

Alternatives[edit]
Limitations of the unemployment definition[edit]
Some critics believe that current methods of measuring
unemployment are inaccurate in terms of the impact of
unemployment on people as these methods do not take into
account the 1.5% of the available working population incarcerated
in U.S. prisons (who may or may not be working while
incarcerated), those who have lost their jobs and have
become discouraged over time from actively looking for work, those
who are self-employed or wish to become self-employed, such as
tradesmen or building contractors or IT consultants, those who have
retired before the official retirement age but would still like to work
(involuntary early retirees), those on disability pensions who, while
not possessing full health, still wish to work in occupations suitable
for their medical conditions, those who work for payment for as little
as one-hour per week but would like to work full-time.[54]

These people are "involuntary part-time" workers, those who are

underemployed, e.g., a computer programmer who is working in a
retail store until he can find a permanent job, involuntary stay-athome mothers who would prefer to work, and graduate and
Professional school students who were unable to find worthwhile
jobs after they graduated with their Bachelor's degrees.

A government unemployment office with job listings, Berlin, Germany,

1982.

Internationally, some nations' unemployment rates are sometimes

muted or appear less severe due to the number of self-employed
individuals working in agriculture.[49] Small independent farmers are
often considered self-employed; so, they cannot be unemployed.
The impact of this is that in non-industrialized economies, such as
the United States and Europe during the early 19th century, overall
unemployment was approximately 3% because so many individuals
were self-employed, independent farmers; yet, unemployment
outside of agriculture was as high as 80%.[49]
Many economies industrialize and experience increasing numbers
of non-agricultural workers. For example, the United States' nonagricultural labour force increased from 20% in 1800, to 50% in
1850, to 97% in 2000.[49] The shift away from self-employment
increases the percentage of the population who are included in
unemployment rates. When comparing unemployment rates
between countries or time periods, it is best to consider differences
in their levels of industrialization and self-employment.
Additionally, the measures of employment and unemployment may
be "too high". In some countries, the availability of unemployment
benefits can inflate statistics since they give an incentive to register
as unemployed. People who do not really seek work may choose to
declare themselves unemployed so as to get benefits; people with
undeclared paid occupations may try to get unemployment benefits
in addition to the money they earn from their work.[55]
However, in countries such as the United States, Canada, Mexico,
Australia, Japan and the European Union, unemployment is
measured using a sample survey (akin to a Gallup poll).
[28]
According to the BLS, a number of Eastern European nations
have instituted labour force surveys as well. The sample survey has
its own problems because the total number of workers in the
economy is calculated based on a sample rather than a census.

It is possible to be neither employed nor unemployed by ILO

definitions, i.e., to be outside of the "labour force." [30] These are
people who have no job and are not looking for one. Many of these
are going to school or are retired. Family responsibilities keep
others out of the labour force. Still others have a physical or mental
disability which prevents them from participating in labour force
activities. And of course some people simply elect not to work,
preferring to be dependent on others for sustenance.
Typically, employment and the labour force include only work done
for monetary gain. Hence, a homemaker is neither part of the labour
force nor unemployed. Nor are full-time students nor prisoners
considered to be part of the labour force or unemployment. [54] The
latter can be important. In 1999, economists Lawrence F. Katz and
Alan B. Krueger estimated that increased incarceration lowered
measured unemployment in the United States by 0.17% between
1985 and the late 1990s.[54]
In particular, as of 2005, roughly 0.7% of the U.S. population is
incarcerated (1.5% of the available working population).
Additionally, children, the elderly, and some individuals with
disabilities are typically not counted as part of the labour force in
and are correspondingly not included in the unemployment
statistics. However, some elderly and many disabled individuals are
active in the labour market
In the early stages of an economic boom, unemployment often
rises.[14] This is because people join the labour market (give up
studying, start a job hunt, etc.) because of the improving job market,
but until they have actually found a position they are counted as
unemployed. Similarly, during a recession, the increase in the
unemployment rate is moderated by people leaving the labour force
or being otherwise discounted from the labour force, such as with
the self-employed.
For the fourth quarter of 2004, according to OECD,
(source Employment Outlook 2005 ISBN 92-64-01045-9),
normalized unemployment for men aged 25 to 54 was 4.6% in the
U.S. and 7.4% in France. At the same time and for the same
population the employment rate (number of workers divided by
population) was 86.3% in the U.S. and 86.7% in France. This
example shows that the unemployment rate is 60% higher in France
than in the U.S., yet more people in this demographic are working in
France than in the U.S., which is counterintuitive if it is expected
that the unemployment rate reflects the health of the labour market.
[56][57]

Due to these deficiencies, many labour market economists prefer to

look at a range of economic statistics such as labour market
participation rate, the percentage of people aged between 15 and
64 who are currently employed or searching for employment, the
total number of full-time jobs in an economy, the number of people
seeking work as a raw number and not a percentage, and the total
number of person-hours worked in a month compared to the total
number of person-hours people would like to work. In particular

theNBER does not use the unemployment rate but prefer various
employment rates to date recessions.[58]
Labor force participation rate[edit]

The United States Labor Force Participation Rate by gender 19482011.

Men are represented in light blue, women in pink, and the total in black.

The labor force participation rate is the ratio between the labor
force and the overall size of their cohort (national population of the
same age range). In the West during the later half of the 20th
century, the labor force participation rate increased significantly,
largely due to the increasing number of women entering the
workplace.
In the United States, there were three significant stages of women's
increased participation in the labor force. During the late 19th
century through the 1920s, very few women worked outside the
home. They were young single women who typically withdrew from
labor force at marriage unless family needed two incomes. These
women worked primarily in the textile manufacturing industry or
as domestic workers. This profession empowered women and
allowed them to earn a living wage. At times, they were a financial
help to their families.
Between 1930 and 1950, women labor force participation has
increased primarily due to the increased demand for office workers,
women participation in the high school movement, and due
to electrification which reduced the time spent on household chores.
In the 1950s to the 1970s, most women were secondary earners
working mainly as secretaries, teachers, nurses, and librarians
(pink-collar jobs).
Claudia Goldin and others, specifically point that by the mid-1970s
there was a period of revolution of women in the labor force brought
on by a source of different factors. Women more accurately planned
for their future in the work force, investing in more applicable majors
in college that prepared them to enter and compete in the labor
market. In the United States, the labor force participation rate rose
from approximately 59% in 1948 to 66% in 2005,[59] with participation
among women rising from 32% to 59%[60] and participation among
men declining from 87% to 73%.[61][62]
A common theory in modern economics claims that the rise of
women participating in the U.S. labor force in the late 1960s was
due to the introduction of a new contraceptive technology, birth

control pills, and the adjustment of age of majority laws. The use of
birth control gave women the flexibility of opting to invest and
advance their career while maintaining a relationship. By having
control over the timing of their fertility, they were not running a risk
of thwarting their career choices. However, only 40% of the
population actually used the birth control pill.
This implies that other factors may have contributed to women
choosing to invest in advancing their careers. One factor may be
that more and more men delayed the age of marriage, allowing
women to marry later in life without worrying about the quality of
older men. Other factors include the changing nature of work, with
machines replacing physical labor, eliminating many traditional male
occupations, and the rise of the service sector, where many jobs are
gender neutral.
Another factor that may have contributed to the trend was The
Equal Pay Act of 1963, which aimed at abolishing wage disparity
based on sex. Such legislation diminished sexual discrimination and
encouraged more women to enter the labor market by receiving fair
remuneration to help raising families and children.
At the turn of the 21st century the labor force participation began to
reverse its long period of increase. The biggest drop occurring over
the period from 2007 to 2011 where participation declined from 66%
to 64.1%. Roughly half of this decline can be attributed to cyclical
factors and half to long-term trend factors. These long-term trend
factors include a rising share of older workers and an increase in
school enrollment rates among young workers.[63]
The labor force participation rate can decrease when the rate of
growth of the population outweighs that of the employed and
unemployed together. The labor force participation rate is a key
component in long-term economic growth, almost as important
as productivity.
Participation rates are defined as follows:
Pop = total population

LF = labor forc

LFpop = labor force population

(generally defined as all men and women aged 1564)

p = participatio

E = number employed

e = rate of emp

U = number of unemployed

u = rate of unem
The labor force participation rate explains how an increase in the
unemployment rate can occur simultaneously with an increase in
employment. If a large amount of new workers enter the labor force

but only a small fraction become employed, then the increase in the
number of unemployed workers can outpace the growth in
employment.[64]
Unemployment ratio[edit]
The unemployment ratio calculates the share of unemployed for the
whole population. Particularly many young people between 15 and
24 are studying full-time and are therefore neither working nor
looking for a job. This means they are not part of the labour force
which is used as the denominator for calculating the unemployment
rate.[65] The youth unemployment ratios in the European Union range
from 5.2 (Austria) to 20.6 percent (Spain). These are considerably
lower than the standard youth unemployment rates, ranging from
7.9 (Germany) to 57.9 percent (Greece).[66]

Effects[edit]
High and persistent unemployment, in which economic
inequality increases, has a negative effect on subsequent long-run
economic growth. Unemployment can harm growth not only
because it is a waste of resources, but also because it generates
redistributive pressures and subsequent distortions, drives people
to poverty, constrains liquidity limiting labor mobility, and erodes
self-esteem promoting social dislocation, unrest and conflict.[67] 2013
Economics Nobel prize winner Robert J. Shiller said that rising
inequality in the United States and elsewhere is the most important
problem.[68]

Costs[edit]
Individual[edit]

Migrant Mother, Dorothea Lange, 1936

Unemployed individuals are unable to earn money to meet financial

obligations. Failure to pay mortgage payments or to pay rent may
lead to homelessness through foreclosure or eviction.[69] Across the

United States the growing ranks of people made homeless in the

foreclosure crisis are generating tent cities.[70]
Unemployment increases susceptibility to malnutrition, illness,
mental stress, and loss of self-esteem, leading to depression.
According to a study published in Social Indicator Research, even
those who tend to be optimistic find it difficult to look on the bright
side of things when unemployed. Using interviews and data from
German participants aged 16 to 94 including individuals coping
with the stresses of real life and not just a volunteering student
population the researchers determined that even optimists
struggled with being unemployed.[71]
In 1979, Brenner found that for every 10% increase in the number
of unemployed there is an increase of 1.2% in total mortality, a 1.7%
increase in cardiovascular disease, 1.3% more cirrhosis cases,
1.7% more suicides, 4.0% more arrests, and 0.8% more assaults
reported to the police.[72][73]
A study by Ruhm, in 2000, on the effect of recessions on health
found that several measures of health actually improve during
recessions.[74] As for the impact of an economic downturn on crime,
during the Great Depression the crime rate did not decrease. The
unemployed in the U.S. often use welfare programs such as Food
Stamps or accumulating debt because unemployment insurance in
the U.S. generally does not replace a majority of the income one
received on the job (and one cannot receive such aid indefinitely).
Not everyone suffers equally from unemployment. In a prospective
study of 9570 individuals over four years, highly conscientious
people suffered more than twice as much if they became
unemployed.[75] The authors suggested this may be due to
conscientious people making different attributions about why they
became unemployed, or through experiencing stronger reactions
following failure. There is also possibility of reverse causality from
poor health to unemployment.[76]
Some[who?] hold that many of the low-income jobs are not 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 low-paying jobs is high.)
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. Unemployment
can cause underemployment, and fear of job loss can spur
psychological anxiety. As well as anxiety, it can cause depression,
lack of confidence, and huge amounts of stress. They will begin to
lose social contacts, and good social skills.
Social[edit]

Demonstration against unemployment in Kerala, India

An economy with high unemployment is not using all of the

resources, specifically labour, available to it. Since it is operating
below itsproduction possibility frontier, it could have higher output if
all the workforce were usefully employed. However, there is a tradeoff between economic efficiency and unemployment: if
the frictionally unemployed accepted the first job they were offered,
they would be likely to be operating at below their skill level,
reducing the economy's efficiency.[77]
During a long period of unemployment, workers can lose their skills,
causing a loss of human capital. Being unemployed can also reduce
the life expectancy of workers by about seven years. [6]
High unemployment can
encourage xenophobia and protectionism as workers fear that
foreigners are stealing their jobs.[78] Efforts to preserve existing jobs
of domestic and native workers include legal barriers against
"outsiders" who want jobs, obstacles to immigration,
and/or tariffs and similar trade barriers against foreign competitors.
High unemployment can also cause social problems such as crime;
if people have less disposable income than before, it is very likely
that crime levels within the economy will increase.
Socio-political[edit]

Unemployment rate in Germany in 2003 by states.

High levels of unemployment can be causes of civil unrest, in some

cases leading to revolution, and particularly totalitarianism. The fall
of the Weimar Republic in 1933 and Adolf Hitler's rise to power,
which culminated in World War II and the deaths of tens of millions
and the destruction of much of the physical capital of Europe, is
attributed to the poor economic conditions in Germany at the time,
notably a high unemployment rate[79] of above 20%; see Great
Depression in Central Europe for details.
Note that the hyperinflation in the Weimar Republic is not directly
blamed for the Nazi rise the Inflation in the Weimar
Republic occurred primarily in the period 192123, which was
contemporary with Hitler's Beer Hall Putsch of 1923, and is blamed
for damaging the credibility of democratic institutions, but the Nazis
did not assume government until 1933, ten years after the
hyperinflation but in the midst of high unemployment.
Rising unemployment has traditionally been regarded by the public
and media in any country as a key guarantor of electoral defeat for
any government which oversees it. This was very much the
consensus in the United Kingdom until 1983, when Margaret
Thatcher'sConservative government won a landslide in the general
election, despite overseeing a rise in unemployment from 1,500,000
to 3,200,000 since its election four years earlier.[80]

Benefits[edit]
Main article: Full employment
The primary benefit of unemployment is that people are available
for hire, without being headhunted away from their existing
employers. This permits new and old businesses to take on staff.
Unemployment is argued to be "beneficial" to the people who are
not unemployed in the sense that it averts inflation, [citation needed] which

itself has damaging effects, by providing (in Marxian terms)

a reserve army of labour, that keeps wages in check. However, the
direct connection between full local employment and local inflation
has been disputed by some due to the recent increase in
international trade that supplies low-priced goods even while local
employment rates rise to full employment.[81]

In the ShapiroStiglitz model of efficiency wages, workers are paid at a

level that dissuades shirking. This prevents wages from dropping to market
clearing levels.

Full employment cannot be achieved because workers would

shirk[citation needed] if they were not threatened with the possibility of
unemployment. The curve for the no-shirking condition (labeled
NSC) goes to infinity at full employment as a result. The inflationfighting benefits to the entire economy arising from a presumed
optimum level of unemployment has been studied extensively.
[82]
The ShapiroStiglitz model suggests that wages are not bid down
sufficiently to ever reach 0% unemployment.[83] This occurs because
employers know that when wages decrease, workers will shirk and
expend less effort. Employers avoid shirking by preventing wages
from decreasing so low that workers give up and become
unproductive. These higher wages perpetuate unemployment while
the threat of unemployment reduces shirking.
Before current levels of world trade were developed, unemployment
was demonstrated to reduce inflation, following the Phillips curve, or
to decelerate inflation, following the NAIRU/natural rate of
unemployment theory, since it is relatively easy to seek a new job
without losing one's current one. And when more jobs are available
for fewer workers (lower unemployment), it may allow workers to
find the jobs that better fit their tastes, talents, and needs.
As in the Marxian theory of unemployment, special interests may
also benefit: some employers may expect that employees with no
fear of losing their jobs will not work as hard, or will demand
increased wages and benefit. According to this theory,
unemployment may promote general labour
productivity and profitability by increasing employers' rationale for
their monopsony-like power (and profits).[16]
Optimal unemployment has also been defended as an
environmental tool to brake the constantly accelerated growth of the

GDP to maintain levels sustainable in the context of resource

constraints and environmental impacts.[84] However the tool of
denying jobs to willing workers seems a blunt instrument for
conserving resources and the environment it reduces the
consumption of the unemployed across the board, and only in the
short term. Full employment of the unemployed workforce, all
focused toward the goal of developing more environmentally
efficient methods for production and consumption might provide a
more significant and lasting cumulative environmental benefit and
reduced resource consumption.[85] If so the future economy and
workforce would benefit from the resultant structural increases in
the sustainable level of GDP growth.
Some critics of the "culture of work" such as anarchist Bob
Black see employment as overemphasized culturally in modern
countries. Such critics often propose quitting jobs when possible,
working less, reassessing the cost of living to this end, creation of
jobs which are "fun" as opposed to "work," and creating cultural
norms where work is seen as unhealthy. These people advocate an
"anti-work" ethic for life.[86]

Decline in work hours[edit]

As a result of productivity the work week declined considerably over
the 19th century.[87][88] By the 1920s in the U.S. the average work
week was 49 hours, but the work week was reduced to 40 hours
(after which overtime premium was applied) as part of the National
Industrial Recovery Act of 1933. At the time of the Great Depression
of the 1930s it was understood that with the enormous productivity
gains due to electrification, mass production and agricultural
mechanization, there was no need for a large number of previously
employed workers.[22][89]

Controlling or reducing unemployment[edit]

United States Families on Relief (in 1,000's)[90]
1936

1937

1938

1939

1940

1941

Workers employed
WPA

1,995

2,227

1,932

2,911

1,971

1,638

CCC and NYA

712

801

643

793

877

919

Other federal work projects

554

663

452

488

468

681

Cases on public assistance

Social security programs
General relief

602

1,306

1,852

2,132

2,308

2,517

2,946

1,484

1,611

1,647

1,570

1,206

Totals
Total families helped

5,886

5,660

5,474

6,751

5,860

5,167

Unemployed workers (BLS)

9,030

7,700

10,390

9,480

8,120

5,560

Coverage (cases/unemployed)

65%

74%

53%

71%

72%

93%

Societies try a number of different measures to get as many people

as possible into work, and various societies have experienced close
to full employment for extended periods, particularly during
the Post-World War II economic expansion. The United Kingdom in
the 1950s and 60s averaged 1.6% unemployment,[91] while in
Australia the 1945White Paper on Full Employment in
Australia established a government policy of full employment, which
policy lasted until the 1970s when the government ran out of
money.
However, mainstream economic discussions of full
employment since the 1970s suggest that attempts to reduce the
level of unemployment below the natural rate of unemployment will
fail, resulting only in less output and more inflation.

Demand-side solutions[edit]
Many countries aid the unemployed through social welfare
programs. These unemployment benefits includeunemployment
insurance, unemployment compensation, welfare and subsidies to
aid in retraining. The main goal of these programs is to alleviate
short-term hardships and, more importantly, to allow workers more
time to search for a job.
A direct demand-side solution to unemployment is governmentfunded employment of the able-bodied poor. This was notably
implemented in Britain from the 17th century until 1948 in the
institution of the workhouse, which provided jobs for the
unemployed with harsh conditions and poor wages to dissuade their
use. A modern alternative is a job guarantee, where the government
guarantees work at a living wage.
Temporary measures can include public works programs such as
the Works Progress Administration. Government-funded
employment is not widely advocated as a solution to
unemployment, except in times of crisis; this is attributed to the
public sector jobs' existence depending directly on the tax receipts
from private sector employment.

Supply-side economics proposes that lower taxes lead to employment

growth. Historical state data from the United States shows a
heterogeneous result.

In the U.S., the unemployment insurance allowance one receives is

based solely on previous income (not time worked, family size, etc.)
and usually compensates for one-third of one's previous income. To
qualify, one must reside in their respective state for at least a year
and, of course, work. The system was established by the Social
Security Act of 1935. Although 90% of citizens are covered by
unemployment insurance, less than 40% apply for and receive
benefits.[92] However, the number applying for and receiving benefits
increases during recessions. In cases of highly seasonal industries
the system provides income to workers during the off seasons, thus
encouraging them to stay attached to the industry.

Tax decreases on high income earners (top 10%) are not correlated with
employment growth, however, tax decreases on lower income earners
(bottom 90%) are correlated with employment growth.[93][93]

According to classical economic theory, markets reach equilibrium

where supply equals demand; everyone who wants to sell at the
market price can. Those who do not want to sell at this price do not;
in the labour market this is classical unemployment. Increases in
the demand for labour will move the economy along the demand
curve, increasing wages and employment. The demand for labour in
an economy is derived from the demand for goods and services. As
such, if the demand for goods and services in the economy
increases, the demand for labour will increase, increasing
employment and wages.
Monetary policy and fiscal policy can both be used to increase
short-term growth in the economy, increasing the demand for labour
and decreasing unemployment.

Supply-side solutions[edit]
However, the labour market is not 100% efficient: It does not clear,
though it may be more efficient than bureaucracy. Some argue that
minimum wages and union activity keep wages from falling, which
means too many people want to sell their labour at the going price
but cannot. This assumes perfect competition exists in the labour
market, specifically that no single entity is large enough to affect
wage levels and that employees are similar in ability.
Advocates of supply-side policies believe those policies can solve
this by making the labour market more flexible. These include
removing the minimum wage and reducing the power of unions.
Supply-siders argue the reforms increase long-term growth by
reducing labour costs. This increased supply of goods and services
requires more workers, increasing employment. It is argued that
supply-side policies, which include cutting taxes on businesses and
reducing regulation, create jobs, reduce unemployment and
decrease labour's share of national income. Other supply-side
policies include education to make workers more attractive to
employers.

History[edit]
There are relatively limited historical records on unemployment
because it has not always been acknowledged or measured
systematically. Industrialization involves economies of scale that
often prevent individuals from having the capital to create their own
jobs to be self-employed. An individual who cannot either join an
enterprise or create a job is unemployed. As individual farmers,
ranchers, spinners, doctors and merchants are organized into large
enterprises, those who cannot join or compete become
unemployed.
Recognition of unemployment occurred slowly as economies across
the world industrialized and bureaucratized. Before this,
traditional self sufficient native societies have no concept of
unemployment. The recognition of the concept of "unemployment"
is best exemplified through the well documented historical records
in England. For example, in 16th century England no distinction was
made between vagrants and the jobless; both were simply
categorized as "sturdy beggars", to be punished and moved on.[94]
The closing of the monasteries in the 1530s increased poverty, as
the church had helped the poor. In addition, there was a significant
rise in enclosure during the Tudor period. Also the population was
rising. Those unable to find work had a stark choice: starve or break
the law. In 1535, a bill was drawn up calling for the creation of a
system of public works to deal with the problem of unemployment,
to be funded by a tax on income and capital. A law passed a year
later allowed vagabonds to be whipped and hanged. [95]
In 1547, a bill was passed that subjected vagrants to some of the
more extreme provisions of the criminal law, namely two years
servitude and branding with a "V" as the penalty for the first offense

and death for the second.[96] During the reign of Henry VIII, as many
as 72,000 people are estimated to have been executed. [97] In the
1576 Act each town was required to provide work for the
unemployed.[98]
The Elizabethan Poor Law of 1601, one of the world's first
government-sponsored welfare programs, made a clear distinction
between those who were unable to work and those able-bodied
people who refused employment.[99] Under the Poor Law systems
of England and Wales, Scotland and Ireland a workhouse was a
place where people who were unable to support themselves, could
go to live and work.[100]

Industrial Revolution to late 19th century[edit]

The Depression of 187379: New York police violently attacking

unemployed workers in Tompkins Square Park, 1874

Poverty was a highly visible problem in the eighteenth

century, both in cities and in the countryside. In France and
Britain by the end of the century, an estimated 10 percent of
the people depended on charity or begging for their food.
Jackson J. Spielvogel (2008), Cengage Learning.
p.566. ISBN 0-495-50287-1
By 1776 some 1,912 parish and corporation workhouses had been
established in England and Wales, housing almost 100,000
paupers.
A description of the miserable living standards of the mill workers in
England in 1844 was given by Fredrick Engels in The Condition of
the Working-Class in England in 1844.[101] In the preface to the 1892
edition Engels notes that the extreme poverty he wrote about in
1844 had largely disappeared. David Ames Wells also noted that
living conditions in England had improved near the end of the 19th
century and that unemployment was low.
The scarcity and high price of labor in the U.S. during the 19th
century was well documented by contemporary accounts, as in the
following:
"The laboring classes are comparatively few in number, but
this is counterbalanced by, and indeed, may be one of the
causes of the eagerness by which they call in the use of
machinery in almost every department of industry. Wherever
it can be applied as a substitute for manual labor, it is

universally and willingly resorted to ....It is this condition of

the labor market, and this eager resort to machinery
wherever it can be applied, to which, under the guidance of
superior education and intelligence, the remarkable
prosperity of the United States is due."[102] Joseph Whitworth,
1854
Scarcity of labor was a factor in the economics of slavery in the U.S.
As new territories were opened and Federal land sales conducted,
land had to be cleared and new homesteads established. Hundreds
of thousands of immigrants annually came to the U.S. and found
jobs digging canals and building railroads. Almost all work during
most of the 19th century was done by hand or with horses, mules,
or oxen, because there was very little mechanization. The
workweek during most of the 19th century was 60 hours.
Unemployment at times was between one and two percent.
The tight labor market was a factor in productivity gains allowing
workers to maintain or increase their nominal wages during the
secular deflation that caused real wages to rise at various times in
the 19th century, especially in the final decades.[103]

20th century[edit]

An unemployed German, 1928. Unemployment in Germany reached

almost 30% of the workforce after the Great Depression.

Unemployed men, marching for jobs during the Great Depression in

Canada, 1930

There were labor shortages during WW I.[22] Ford Motor Co. doubled
wages to reduce turnover. After 1925 unemployment began to
gradually rise.[104]

Great Depression[edit]
Main article: Great Depression
The decade of the 1930s saw the Great Depression impact
unemployment across the globe. One Soviet trading corporation in
New York averaged 350 applications a day from Americans seeking
jobs in the Soviet Union.[105] In Germany the unemployment rate
reached nearly 25% in 1932.[106]
In some towns and cities in the north east of England,
unemployment reached as high as 70%; the national unemployment
level peaked at more than 22% in 1932.[107] Unemployment in
Canada reached 27% at the depth of the Depression in 1933.[108] In
1929, the U.S. unemployment rate averaged 3%.[109] In 1933, 25% of
all American workers and 37% of all nonfarm workers were
unemployed.[110]

WPA poster promoting the benefits of employment

In the U.S., the WPA (193543) was the largest make-work

program. It hired men (and some women) off the relief roles ("dole")
typically for unskilled labor.[111]
In Cleveland, Ohio, the unemployment rate was 60%; in Toledo,
Ohio, 80%.[112] There were two million homeless people migrating
across the United States.[112] Over 3 million unemployed young men
were taken out of the cities and placed into 2600+ work camps
managed by the CCC.[113]
Unemployment in the United Kingdom fell later in the 1930s as the
depression eased, and remained low (in six figures) after World War
II.

Fredrick Mills found that in the U.S., 51% of the decline in work
hours was due to the fall in production and 49% was from increased
productivity.[114] By 1972 unemployment in the UK had crept back up
above 1,000,000, and was even higher by the end of the decade,
with inflation also being high. Although the monetarist economic
policies of Margaret Thatcher's Conservative government saw
inflation reduced after 1979, unemployment soared in the early
1980s, exceeding 3,000,000 a level not seen for some 50 years
by 1982. This represented one in eight of the workforce, with
unemployment exceeding 20% in some parts of the United Kingdom
which had relied on the now-declining industries such as coal
mining.[115]
However, this was a time of high unemployment in all major
industrialised nations.[116] By the spring of 1983, unemployment in
the United Kingdomhad risen by 6% in the previous 12 months;
compared to 10% in Japan, 23% in the United States of
America and 34% in West Germany (seven years
before reunification).[117]
Unemployment in the United Kingdom remained above 3,000,000
until the spring of 1987, by which time the economy was enjoying a
boom.[115] By the end of 1989, unemployment had fallen to
1,600,000. However, inflation had reached 7.8% and the following
year it reached a nine-year high of 9.5%; leading to increased
interest rates.[118]
Another recession began during 1990 and lasted until 1992.
Unemployment began to increase and by the end of 1992 nearly
3,000,000 in the United Kingdom were unemployed. Then came a
strong economic recovery.[115] With inflation down to 1.6% by 1993,
unemployment then began to fall rapidly, standing at 1,800,000 by
early 1997.[119]

21st century[edit]

The Japanese unemployment rate, 19532006.

The official unemployment rate in the 16 EU countries that use the

euro rose to 10% in December 2009 as a result of another
recession.[120] Latvia had the highest unemployment rate in EU at
22.3% for November 2009.[121] Europe's young workers have been
especially hard hit.[122] In November 2009, the unemployment rate in
the EU27 for those aged 1524 was 18.3%. For those under 25, the
unemployment rate in Spain was 43.8%.[123] Unemployment has
risen in two-thirds of European countries since 2010.[124]

Into the 21st century, unemployment in the United

Kingdom remained low and the economy remaining strong, while at
this time several other European economies namely, France and
Germany (reunified a decade earlier) experienced a minor
recession and a substantial rise in unemployment.[125]
In 2008, when the recession brought on another increase in the
United Kingdom, after 15 years of economic growth and no major
rises in unemployment.[126] Early in 2009, unemployment passed the
2,000,000 mark, by which time economists were predicting it would
soon reach 3,000,000.[127] However, the end of the recession was
declared in January 2010[128] and unemployment peaked at nearly
2,700,000 in 2011,[129] appearing to ease fears of unemployment
reaching 3,000,000.[130] The unemployment rate of Britain's young
black people was 47.4% in 2011.[131]2013/2014 has seen the
employment rate increase from 1,935,836 to 2,173,012 as
supported by [132] showing the UK is creating more job opportunities
and forecasts the rate of increase in 2014/2015 will be another
7.2% [133]
An 26 April 2005 Asia Times article notes that, "In regional giant
South Africa, some 300,000 textile workers have lost their jobs in
the past two years due to the influx of Chinese goods".[134] The
increasing U.S. trade deficit with China cost 2.4 million American
jobs between 2001 and 2008, according to a study by the Economic
Policy Institute (EPI).[135]From 2000 to 2007, the United States lost a
total of 3.2 million manufacturing jobs.[136]
About 25 million people in the world's 30 richest countries will have
lost their jobs between the end of 2007 and the end of 2010 as the
economic downturn pushes most countries into recession.[137] In April
2010, the U.S. unemployment rate was 9.9%, but the government's
broader U-6 unemployment rate was 17.1%.[138] In April 2012, the
unemployment rate was 4.6% in Japan.[139] In a 2012 news story,
the Financial Post reported, "Nearly 75 million youth are
unemployed around the world, an increase of more than 4 million
since 2007. In the European Union, where a debt crisis followed the
financial crisis, the youth unemployment rate rose to 18% last year
from 12.5% in 2007, the ILO report shows."[140]

See also[edit]
Business and economics portal

Basic income

Economics terminology that differs from common usage

Effective unemployment rate

Employment Protection Legislation

Employment rate

Federal Reserve Economic Data FRED

Graduate unemployment

HIRE Act

Job migration

Short time

Shapiro-Stiglitz theory

List of countries by unemployment rate

List of countries by long-term unemployment rate

List of U.S. states by unemployment rate

Male unemployment

Spatial mismatch

Training

Unemployment extension

Volunteering

Waithood

Workfare

Youth exclusion

Youth unemployment

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Further reading[edit]

Farmer, Roger E. A. (1999).

"Unemployment". Macroeconomics (Second ed.). Cincinnati:
South-Western. pp. 173192. ISBN 0-324-12058-3.

Romer, David (2011). "Unemployment". Advanced

Macroeconomics (Fourth ed.). New York: McGraw-Hill. pp. 456
512. ISBN 978-0-07-351137-5.

Simonazzi, A.; Vianello, F. (2001). "Financial Liberalization, the

European Single Currency and the Problem of Unemployment".
In Franzini, R.; Pizzuti, R. F. Globalization, Institutions and
Social Cohesion. Heidelberg: Springer. ISBN 3-540-67741-0.

Summers, Lawrence H. (2008). "Unemployment". In David R.

Henderson (ed.). Concise Encyclopedia of Economics (2nd
ed.). Library of Economics and Liberty. ISBN 9780865976658. OCLC 237794267.

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The Effects and Causes of

Unemployment
Unemployment is an economic condition in which individuals actively seeking jobs remain unhired.The problem of unemployment is a world-wide reality; the developed countries as well as the
developing countries suffer from it. With the passage of time it has become worse especially after
the recent global economic crisis. It has become a threat to global economic well-being and social
development. The International Labor Organization (ILO) estimates that 178 million women and men
are officially counted as unemployed in 2007 and another billion or more people are underemployed
or working low wage jobs. These numbers has increased to 212 million in late 2009. There are many
causes contribute to this global key concern such as increased population, rapid technological
change, lack of education or skills and rising cost.This paper discusses the major causes of
unemployment and associates them with long-lasting effects that include financial, social and
psychological problems.

The Causes and Effects of Unemployment

The term unemployment is used to describe anyone who is able to work, but doesnt have an
occupation. Unemployment is one of the most common and chronic problems worldwide. It is a
concern for individuals as well as global communities. Unemployment is expressed as percentage of
the total available work force that is unemployed, but actively seeking employment and willing to
work which is known as the unemployment rate. (>>>>>>>>>>>) The Bahrain's unemployment rate
has dropped from an estimated average of 16.4 percent in 2006 to 3.7 percent in 2010 (Minister of
Labour Dr. Majeed Al Alawi, 2010).

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Basically there are five types of unemployment: frictional unemployment, cyclical unemployment,
structural unemployment, real wage or classical unemployment, and seasonal unemployment. The
level of unemployment varies with economic conditions and other circumstances. The causes of
unemployment include increased population, rapid technological change, lack of education or skills
and rising cost lead to financial, social and psychological problems.
There are four main causes of unemployment. Firstly, the increased population which leads to higher
unemployment rates. As the number of people who are looking for jobs is increasing, it is more
difficult to arrange jobs for all these huge numbers of workers. In this situation the demand for work
will be more than the available occupations. This will result in increased number of unemployed
individuals. An unemployment situation continues as long as the demand-supply gap persists. This is
very obvious in countries like China and India.
There is a global rapid technological change which plays a big role in the increased unemployment
problem. Many jobs which were handled by hands are being done by different machines and
technology nowadays. The new advanced technology replaced the low skilled or unskilled workers in
different factories. This made production faster and more accurate, but it resulted in more
unemployed people. For example; when personal computers replaced typewriters, typewriter
become unemployed and had to find other industries to be employed in. Additionally, according to
the International Labour Office technological progress may have had a more substantial impact. The
new technological advances have eliminated the less complicated tasks; while at the same time
require workers to have higher levels of skills. However, it is doubtful whether technological change
is leading to a net destruction of employment, if both direct and indirect impacts are accounted for.
(Combating Unemployment and Exclusion: Issues and Policy Options, Contribution to the G7
Employment Conference submitted by the Director-General of the International Office, Lille, 1-2 April
1996. ISBN 92-2-110158-4. International Labour Office, Geneva, 1996.)
The third cause of unemployment is lack of education or skills for employment. This happens when
the qualifications of a person are not sufficient to meet his job responsibilities. If the education was
not directed towards the labour market then a mismatch occurs thus leading to structural
unemployment. These individuals face difficulties in learning new skills applicable for the required job
e.g. computer skills, management and communication. As the need for skilled and educated workers
increase for employers, the employment opportunities for those without a college education
decrease leading to higher unemployment rate. (Morgan Drake Eckstein , nd)
Unemployment can be due to the rising cost. The rising cost makes it hard for the companies to pay
the usual optimum salary for the employees or even the minimum wage in some cases. Hence, the
employees reject low wage jobs and leave the companies. Foe example if the price of petrol or
electricity has increased this definitely will affect the industries or factories which depend on these
energy sources. Moreover, sometimes companies need to cut down the budget due to an economic
crisis, industrial decline, company bankruptcy, or organizational restructuring, so the number of
employees is reduced or some positions are cancelled which increases the unemployment rates.

There are three major effects of unemployment. First, the financial problems which are rising from
prolonged unemployment. It is known that we can not buy anything without money; the constant
income buys food, clothing and shelter. Due to the loss of income, unemployed individuals will be
unable to earn money to meet financial obligations. For example, people who fail to pay mortgage
payments or to pay rent will loss their housing properties and become homeless. Unemployment
also prevents one from doing many things and involving in different activities e.g. travelling.
Consequently, this affects the national economy leads to poverty. As a result of the financial crisis
and the reduced overall purchasing capacity of a country the unemployed individuals are unable to
maintain the minimum standard of living. (paraphrasing>>>>>>>>>>)
There are many obvious and well-documented social problems which are caused by unemployment.
Because of the increased spare time and stress there will be an increase in the rates of alcoholism,
drug abuse and domestic violence. Moreover, high unemployment often results in increased
marriage breakdown, divisions and discrimination in society, suicide rates and crime rates especially
among the young (Garry Ottosen and Douglas Thompson, 1996).

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Unemployment also has been connected to the impaired family functioning as it affects the parents'
interactions with their children and their spouse as well. Unemployed parents spend more time with
their children, but the quality of these interactions suffers in comparison with those of employed
parents. (Liker and Elder 1983; Barling 1990) On the other hand, it is not clear how the
unemployment play a role in these adverse events and what is the significance of other related
factors.
Unemployment affects a person psychologically too. Numerous studies have revealed a relationship
between unemployment and lack of self esteem and confidence leading to depression. Besides,
there is an increased anxiety and stress levels which lead to psychosomatic diseases, personal
worthlessness and powerlessness. In a study on the "Influence of the Social Environment on
Psychology" conducted in 1979 by Dr. M. Brenner it was found that every 10% increase in the
number of people unemployed on average causes an increase of 1.2% in total mortality, a 1.7%
increase in cardiovascular disease, 1.3% more cirrhosis cases, 1.7% more suicides, 4.0% more

arrests, and 0.8% more assaults reported to the police. Furthermore, it has shown that long period of
unemployment can also reduce the life expectancy of workers by about 7 years (Alain Anderson,
Economics. Fourth Edition 2006)
In conclusion, there are different causes of unemployment around the world. The top causes are
increased population, rapid technological change, lack of education or skills and rising cost. The
various effects of unemployment include financial, social and psychological problems.
Unemployment has become a major problem which affects our life, health, economy and community.
So countries should build more companies and factories in order to provide more opportunities and
positions to respond to the need of the increased population. Moreover, there should be
unemployment insurance to help unemployed individuals in their financial problems till they find a
job. It is important also to utilize the vocational education along with other skills courses' in order to
prompt the education and skills of the workers to meet the labour market need.