Frictional unemployment exists because both jobs and workers are heterogenous, 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. There is always at least some frictional unemployment in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment.
Though economists accept that some frictional unemployment is okay because both potential workers and employers take some time to find the best employee-position match, too much frictional unemployment is undesirable.
Governments will seek ways to reduce unnecessary frictional unemployment through multiple means including providing education, advice, training, and assistance such as daycare centers. Structural unemployment is a form of unemployment where, at a given wage, the quantity of labor supplied exceeds the quantity of labor demanded, because there is a fundamental mismatch between the number of people who want to work and the number of jobs that are available.
The unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available. A common cause of structural unemployment is technological change.
With the advent of telephones, for example, some telegraph operators were put out of work. Their inability to find work was due to an oversupply of skilled telegraph operators relative to the demand for workers with that ability.
Of course, the economy may not be operating at its natural level of employment, so unemployment may be above or below its natural level. This is often attributed to the business cycle: the expansion and contraction of the economy around the long-term growth trend.
During periods in the business cycle when the economy is producing below its long-run, optimum level, firms demand fewer workers and the result is cyclical unemployment. In this case the long-run demand for labor is higher than the temporary demand, so the rate of unemployment is higher than its natural rate. Unemployment Rate : The short-term fluctuations in the graph are the result of cyclical unemployment that changes when economic activity is above or below its long-term potential.
Public policy seeks to minimize unemployment by providing information, training, facilities, and other programs to assist the unemployed. Most governments strive to achieve low levels of unemployment.
However, the types of policies differ depending on what type of unemployment they address. Frictional unemployment is the period between jobs in which an employee is searching for or transitioning from one job to another.
It exists because the labor market is not perfect and there may be mismatches between job-seekers and jobs before workers are hired for the right position. If the search takes too long and mismatches are too frequent, the economy suffers, since some work will not get done. Governments can enact policies to try to reduce frictional unemployment.
These include offering advice and resources for job-seekers and providing clear and transparent information on available jobs and workers. This can take the form of free career counseling and job boards or job fairs. The government can provide facilities to increase availability and flexibility — for example, providing daycare may allow part-time or non-workers to transition into full-time jobs, and public transportation may widen the number of jobs available to somebody without a car.
The government may also fund publicity campaigns or other programs to combat prejudice against certain types of workers, jobs, or locations. On the other hand, some frictional unemployment is a good thing — if every worker was offered, and accepted, the first job they encountered, the distribution of workers and jobs would be quite inefficient. Many governments offer unemployment insurance to both alleviate the short-term hardship faced by the unemployed and to allow workers more time to search for a job.
These benefits generally take the form of payments to the involuntarily unemployed for some specified period of time following the loss of the job. In order to achieve the goal of reducing frictional unemployment, governments typically require beneficiaries to actively search for a job while receiving payments and do not offer unemployment benefits to those who are fired or leave their job by choice.
Structural unemployment is due to more people wanting jobs than there are jobs available. Public policy can respond to structural unemployment through programs like job training and education to equip workers with the skills firms demand.
A worker who was trained in an obsolete field, such as a typesetter who lost his job when printing was digitized, may benefit from free retraining in another field with strong demand for labor. Job Training Programs : Many organizations seek to minimize structural unemployment by offering job training and education to provide workers with in-demand skills.
A union is a formal organization of workers who have banded together to achieve common goals such as protecting the integrity of its trade, achieving higher pay, increasing the number of employees an employer hires, and better working conditions. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. The national unemployment rate. Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force.
The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work. The employment-population ratio. This measure is the number of employed as a percentage of the civilian noninstitutional population 16 years old and over.
In other words, it is the percentage of the population that is currently working. Each month, national summary statistics on unemployment and employment are published in a news release titled The Employment Situation. The dates of release are announced in advance and made available on the BLS release calendar.
Detailed information also is published in tables online and in numerous news releases and reports. Historical data series can be obtained from various database tools.
Total employment and unemployment are higher in some parts of the year than in others. For example, unemployment is higher in January and February, when it is cold in many parts of the country and work in agriculture, construction, and other seasonal industries is curtailed. Also, both employment and unemployment rise every June, when students enter the labor force in search of summer jobs. The seasonal fluctuations in the number of employed and unemployed people reflect not only the normal seasonal weather patterns that tend to be repeated year after year, but also the hiring and layoff patterns that accompany regular events such as the winter holiday season and the summer vacation season.
These variations make it difficult to tell whether month-to-month changes in employment and unemployment are due to normal seasonal patterns or to changing economic conditions. To deal with such problems, a statistical technique called seasonal adjustment is used. This technique uses the past history of the series to identify the seasonal movements and to calculate the size and direction of these movements. A statistical procedure is then applied to the estimates to remove the effects of regular seasonal fluctuations on the data.
Seasonal adjustment eliminates the influence of these fluctuations and makes it easier for users to observe fundamental changes in the level of the series, particularly changes associated with general economic expansions and contractions. Many of the monthly time series for major labor market indicators, especially those in the monthly Employment Situation report, are seasonally adjusted.
There is only one official definition of unemployment—people who are jobless, actively seeking work, and available to take a job, as discussed above. The official unemployment rate for the nation is the number of unemployed as a percentage of the labor force the sum of the employed and unemployed. Some have argued, however, that these unemployment measures are too restricted, and that they do not adequately capture the breadth of labor market problems.
For this reason, economists at BLS developed a set of alternative measures of labor underutilization. These measures, expressed as percentages, are published every month in The Employment Situation news release. They range from a very limited measure that includes only those who have been unemployed for 15 weeks or more to a very broad one that includes total unemployed, all people marginally attached to the labor force, and all individuals employed part time for economic reasons.
More information about the alternative measures is available on the BLS website. The CPS also is used to obtain detailed information on particular segments of the population and labor force. Generally, these "supplemental" inquiries are repeated annually or biennially in the same month and include topics such as annual earnings, income , and poverty of individuals and families published by the Census Bureau ; the extent of work experience of the population during the prior calendar year; the employment of school-age youth, recent high school graduates, and dropouts; job tenure; displaced workers; and veterans with a service-connected disability.
Some additional supplements that are unrelated to labor force issues, such as those on smoking and voting, also are conducted through the CPS, although they are not sponsored by BLS. Supplemental questions are asked following the completion of the regular monthly labor force questions. Results of these special surveys usually are published in news releases and other BLS reports. The Local Area Unemployment Statistics LAUS program publishes monthly estimates of employment and unemployment for approximately 7, areas, including all states, counties, metropolitan areas, and cities of 25, population or more, by place of residence.
These estimates are key indicators of current local economic conditions. BLS is responsible for the concepts, definitions, technical procedures, validation, and publication of the estimates that state government agencies prepare under agreement with BLS.
Because the CPS survey of 60, households nationwide is insufficient for creating reliable monthly estimates for statewide and substate areas, LAUS uses three different estimating procedures, each being the most appropriate for the level of geography being estimated.
In general, estimates for the states are developed using statistical models that incorporate current and historical data from the CPS, the Current Employment Statistics CES program , and regular state unemployment insurance UI systems. These model-based state estimates are also controlled in "real time" to sum to the not seasonally adjusted national monthly CPS totals.
Model-based estimates are also developed for seven large substate areas and their respective balances of state. Estimates for the substate labor market areas are produced through a building-block approach known as the "Handbook method. Below the labor market area level, estimates are created for counties, cities, and towns above 25, population using disaggregation techniques based on inputs from the decennial census, annual population estimates, and current UI data.
Unlike the LAUS state and substate labor force estimates, which have multiple sources of inputs and are available on a monthly basis, the demographic labor force data from the Geographical Profile of Employment and Unemployment GP bulletins , also published by LAUS, are derived solely from the CPS and are issued annually. National CPS data can be found on the Internet at www.
State, city, county, and other local area employment and unemployment data are available on the Internet at www. Unemployment insurance UI programs are administered at the state level and provide assistance to jobless people who are looking for work.
Statistics on the insured unemployed in the United States are collected as a by-product of state UI programs. Workers who lose their jobs may file applications to determine if they are eligible for UI assistance. These applications are referred to as "initial claims. Data on initial and continuing UI claims are maintained by the Employment and Training Administration, an agency of the U. While the UI claims data provide useful information, they are not used to measure total unemployment because they exclude several important groups.
To begin with, not all workers are covered by UI programs. For example, self-employed workers, unpaid family workers, workers in certain not-for-profit organizations, and several other small primarily seasonal worker categories are not covered.
In addition, the insured unemployed exclude the following: Unemployed workers who have exhausted their benefits. Unemployed workers who have not yet earned benefit rights such as new entrants or reentrants to the labor force.
Disqualified workers whose unemployment is considered to have resulted from their own actions rather than from economic conditions; for example, a worker fired for misconduct on the job. Otherwise eligible unemployed persons who do not file for benefits. Because of these and other limitations, statistics on insured unemployment cannot be used as a measure of total unemployment in the United States.
Indeed, over the past decade, only about one-third of the total unemployed, on average, received regular UI benefits. UI claims data are widely used as an indicator of labor market conditions. Data users must be cautious, however, about trying to compare or reconcile the UI claims data with the official unemployment figures gathered through the CPS. Even if one sets aside the major definitional limitations outlined above, there are comparability issues related to the distinct reference periods, methodologies, and reporting practices of the two data sources.
More importantly, though, the weekly UI claims data reflect only people who became unemployed and do not take into account the number of unemployed people who found jobs or stopped looking for work. The simplest way of thinking about Obamacare is, for better or worse, the U. And so Obamacare is trying to break the nexus between having to be in the formal labor force and getting health insurance. It would be unprecedented to end benefits for the long-term jobless when long-term unemployment remains so widespread pic.
Listen to the full program here. Excerpts from the show appear below: How does the government measure someone who has dropped out of the job search? Up Front What does the unemployment rate measure? Stephanie Aaronson. One was that women joined the labor market. Female labor force participation rose, it appears to have run its course. Cyclical unemployment explains why unemployment rises during a recession and falls during an economic expansion.
But what explains the remaining level of unemployment even in good economic times? Why is the unemployment rate never zero? Even when the U. Moreover, the discussion earlier in this chapter pointed out that unemployment rates in many European countries like Italy, France, and Germany have often been remarkably high at various times in the last few decades. Why does some level of unemployment persist even when economies are growing strongly?
Why are unemployment rates continually higher in certain economies, through good economic years and bad? Economists have a term to describe the remaining level of unemployment that occurs even when the economy is healthy: it is called the natural rate of unemployment. It is not a physical and unchanging law of nature. These forces include the usual pattern of companies expanding and contracting their workforces in a dynamic economy, social and economic forces that affect the labor market, or public policies that affect either the eagerness of people to work or the willingness of businesses to hire.
Conversely, other companies will be doing very well for just the opposite reasons and looking to hire more employees. In a perfect world, all of those who lost jobs would immediately find new ones. But in the real world, even if the number of job seekers is equal to the number of job vacancies, it takes time to find out about new jobs, to interview and figure out if the new job is a good match, or perhaps to sell a house and buy another in proximity to a new job.
The unemployment that occurs in the meantime, as workers move between jobs, is called frictional unemployment. Frictional unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered.
But in periods of economic growth, these destroyed jobs are counterbalanced for the economy as a whole by a larger number of jobs created.
In , for example, there were typically about 7. Even though about two-thirds of those unemployed people found a job in 14 weeks or fewer, the unemployment rate did not change much during the year, because those who found new jobs were largely offset by others who lost jobs. Of course, it would be preferable if people who were losing jobs could immediately and easily move into the new jobs being created, but in the real world, that is not possible. Someone who is laid off by a textile mill in South Carolina cannot turn around and immediately start working for a textile mill in California.
Instead, the adjustment process happens in ripples. Some people find new jobs near their old ones, while others find that they must move to new locations. Some people can do a very similar job with a different company, while others must start new career paths.
Some people may be near retirement and decide to look only for part-time work, while others want an employer that offers a long-term career path. The frictional unemployment that results from people moving between jobs in a dynamic economy may account for one to two percentage points of total unemployment. The level of frictional unemployment will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.
The extent of frictional unemployment will also depend to some extent on how willing people are to move to new areas to find jobs—which in turn may depend on history and culture.
Frictional unemployment and the natural rate of unemployment also seem to depend on the age distribution of the population. Figure 2 from Patterns of Unemployment b showed that unemployment rates are typically lower for people between 25—54 years of age than they are for those who are either younger or older. But some proportion of those who are under 30 may still be trying out jobs and life options and some proportion of those over 55 are eyeing retirement.
In both cases, the relatively young or old tend to worry less about unemployment than those in-between, and their periods of frictional unemployment may be longer as a result. Thus, a society with a relatively high proportion of relatively young or old workers will tend to have a higher unemployment rate than a society with a higher proportion of its workers in middle age.
Another factor that influences the natural rate of unemployment is the amount of structural unemployment. The structurally unemployed are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills.
An example of the former would be the unemployment among aerospace engineers after the U. An example of the latter would be high school dropouts. Some people worry that technology causes structural unemployment. In the past, new technologies have put lower skilled employees out of work, but at the same time they create demand for higher skilled workers to use the new technologies.
Education seems to be the key in minimizing the amount of structural unemployment. Individuals who have degrees can be retrained if they become structurally unemployed. For people with no skills and little education, that option is more limited.
The natural unemployment rate is related to two other important concepts: full employment and potential real GDP. The economy is considered to be at full employment when the actual unemployment rate is equal to the natural unemployment.
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