In compiling unemployment statistics for the United States and other developed countries an unemployed person is defined as anyone who is capable of working and is actively seeking work but is unable to find a job.1Before a person can be unemployed in this sense he must be an active member of the labor force in search of a job. Students and Homemakers perform work, but they are not considered employed unless they are paid; however, they are not considered unemployed unless they are actively seeking gainful jobs.
In societies in which a majority of the citizens are able to earn a living by working for others, being unable to locate and obtain a job is a very serious problem. Unemployment is widely used as a measure of workers' welfare because of the human costs and feelings of rejection and personal failure. The proportion of workers unemployed also shows how well a nations human resources are used and serves as an index of economic activity. The civilian labor force comprises the total of all civilians classified as employed or unemployed. The total labor force also includes members of the Armed Forces stationed either in the US Or abroad. The unemployment rate represents the number unemployed as a percent of the civilian labor force.2
Unemployment can be divided percent of the civilian labor into three types known as frictional, structural, and cyclical. The first form of unemployment is frictional unemployment. Frictional unemployment arises because workers seeking jobs do not find them immediately. While looking for work they are counted as unemployed.3 This could happen if suppose a person loses a job, perhaps because the work is finished. For example a construction craftsman when the job is finished; or it could happen to an actor or actress when the show closes. It will ordinarily take some time before that person finds another job. But while construction workers and entertainers can ordinarily expect to face this problem from time to time, it is something that can happen to anyone employed. People who are simply between jobs, in this sense, are said to be frictionally unemployed. The amount of frictional unemployment depends on the frequency with which workers change jobs and the time it takes to find new ones.4 This is a particularly important category, since this category of unemployment can never be eliminated or reduced to zero. Even in the best functioning market economy, there will be some people who are between jobs. However, I think this type of unemployment could be reduced somewhat by more efficient placement services. The second form of unemployment is structural unemployment. Structural unemployment arises from an imbalance between the kinds of workers wanted by employers and the kinds of workers looking for jobs. The imbalances may be caused by inadequacy of skills, location, or personal characteristics.5 Technological developments necessitate new skills in many industries, leaving those workers who have outdated skills without a job. A plant in a declining industry may close down or move to another area, throwing out of work those employees who are unable to unwilling to move. Workers with inadequate education or training and young workers with little or no experience may be unable to get jobs because employers believe that these employees would not produce enough to be worth paying the legal minimum wage or the rate agreed upon with the union. On the other hand, even highly trained workers can be unemployed. This happened in the United States in the early 1970's, when the large numbers of new graduates with doctoral degrees in physics and mathematics exceeded the number of jobs available in those fields.6 If employers practice illegal job discrimination against any group, a high unemployment rate for those workers could result even when jobs are plentiful. Structural unemployment shows up most prominently in some cities, in some occupations or industries, for those with below average education, and for some other groups in the labor force.
The third form of unemployment is cyclical unemployment. Cyclical unemployment results from a general lack of demand for labor. When the business cycle turns downward, demand for goods and services drops. Consequently workers are laid off.7 In the 19th century, the United States experienced depressions roughly every twenty years. A long and severe depression occurred in the 1890's, when unemployment reached about 18 percent of the civilian labor force, and four less severe depressions occurred in the first quarter of the twentieth century. The worst depression in US History was in the 1930's. At its height, one worker in four was unemployed, and some remained out of work for years.8 In industrialized countries, with unemployment insurance and other forms of income maintenance, unemployment does not cause as great a hardship as it once did. Measures to stabilize the economy have made economic downturns briefer and less severe.
In the Great Depression of the 1930's, 25 percent of the work force was unemployed in the US, Britain, and Germany. US Unemployment was relatively low in the 1950's and 1960's, averaging about four percent, but it rose through the 1970's and was greater than ten percent in 1982, the highest rate since 1940. The rate was considerably higher among nonwhite minorities and the young, approaching 50 percent among African-American teenagers in urban areas.9 By 1990 the average unemployment rate had dropped to almost five percent; it fluctuated between five and seven percent in the early 1990's.10 According to the Bureau of Labor Statistics, the number of persons working or looking for work is projected to increase by 17 million over the 1998 - 2008 period, reaching 155 million in 2008. This 12 percent increase is only slightly lower than the 13 percent increase over the previous ten year period, 1988 - 1998, when the labor force grew by 16 million. For women, the rate of growth in the labor force is expected to slow, but it will still increase at a faster rate than that of men. The share of women in the labor force is projected to increase from 46 percent in 1998 to 48 percent in 2008. The projected labor force growth will be affected by the aging of the baby-boom generation, persons born between 1946 and 1964. The youth labor force (16 to 24) is expected to grow more rapidly than the overall labor force for the first time in 25 years. At the same time, the number of persons in the labor force aged 25 to 34 and 35 to 44 is projected to decrease. Total employment in the United States is projected to increase by 20.3 million between 1998 and 2008, from 140.5 million to 160.8 million. The majority of growth in total employment is attributed to the projected increase of 19.4 million non farm wage and salary jobs. The number of non farm self-employed and unpaid family workers also is projected to increase, while the number of private household wage and salary jobs is expected to decline. Agricultural employment, including wage and salary and self-employed as well as unpaid family workers, is expected to decrease by 51,000 jobs. The service-producing sector remains the dominant source of employment and output growth over the projected period. Between 1998 and 2008, this sector is expected to add an additional 19.1 million jobs, accounting for three out of every four jobs in the US Economy. The employment projection is accompanied by an assumed unemployment rate of 4.7 percent, slightly higher than the 1998 annual average of 4.5 percent.11 The US unemployment rate dropped to 4.1 percent in the fourth quarter of 1999 - a 30 year low. The rate had been 4.4 percent at the end of 1998. Workers in most major demographic groups benefited from improvements in the job market in 1999. The unemployment rate of teens improved slightly in 1999, finishing the year at 13.8 percent. The teenage unemployment rate had not been that low since the early 1970's. The unemployment rate for whites finished 1999 at a three decade low of 3.5 percent. For Hispanics, the unemployment rate reached a record low of 6.1 percent at the end of 1999. The black unemployment rate finished the year at 8.1 percent, a rate lower than any recorded prior to 1999.12
Labor is one of the resources most likely to be under used. Unemployment is a failure to use the available labor. There are two major views on unemployment. The Keynesian view and the Classical view. Classical theories revolved mainly around the role of markets in the economy. If markets worked freely and nothing prevented their rapid clearing then the economy would prosper. Any imperfections in the market that prevented this process should be dealt with by the government. The main roles of government are therefore to ensure the free workings of markets and to ensure a balanced budget. The Classical economists assumed that if the economy was left to itself, then it would tend toward full employment equilibrium. This would happen if the labor market worked properly. If there was any unemployment, then the following would happen:
Unemployment = fall in wages = increased demand for labor = equilibrium restored
This can be shown on a diagram of the labor market. Wages are initially too high and there is unemployment of ab. This causes wage rates to fall and employment increases as a result from Q1 to Q2. 13
Any unemployment left in the economy would be purely voluntary unemployment - people who have chosen not to work at the going wage rate.
Keynesians didn't agree with the Classical economists. They believe unemployment is an excess supply of labor resulting from a failure of coordination in the market economy. They argued that markets would not automatically lead to full employment equilibrium, but in fact the economy could settle in equilibrium at any level of unemployment. The economy would need prodding if it was to head in the right direction, and this meant active intervention by the government to manage the level of demand. If there was disequilibrium between leakages and injections, than Classical economists believed that prices would adjust to restore the equilibrium. Keynesians, however, believed that the level of output would adjust.14
In more traditional societies, those in which the productivity of agriculture labor is very low, virtually the entire population must be employed in farming. As a country develops, it becomes able to feed its people more easily, so that a smaller proportion need to be employed in farming. When productivity reaches a certain point, the demand for agricultural products (primary goods) drops in relation to the demand for other goods, such as clothing, shelter, and manufactured products. The production of these secondary goods ultimately becomes organized in factories and expands dramatically. As the demand for other manufactured goods grows and remains high, employment in the secondary sector remains high as well. There is also a third, or tertiary sector of employment comprising such activities as the service trades, teaching, administration, scientific research, medical care, art, and tourism, as well as other pursuits that are not carried on in factories. Technical progress in those areas is slight, compared to that in the primary and secondary sectors, and so the activities in the tertiary sector require a large number of people. In countries with high living standards, the demand for products of the tertiary sector keeps increasing; thus employment in that sector increases more rapidly than in the others.15
The US Department of Labor recognizes nine major industry groups including: services, retail trade, government, manufacturing, finance, insurance and real estate, wholesale trade, transportation and public utilities, construction and mining. The Department of Labor takes each division and analyzes its employment and unemployment rates as seen in the chart below.16
Industry Employment in 1998 Employment growth from 1990 to 1998 Unemployment Rate in 1999 Overall Unemployment Rate in 1999
Services 35.0 million 39.6% 4.0% 4.2%
Retail trade 22.3 million 18.2% 5.7% 4.2%
Government 19.1 million 10.1% 2.2% 4.2%
Manufacturing 18.8 million 18.8% 3.6% 4.2%
Finance, Insurance and Real Estate 7.2 million 15.6% 2.3% 4.2%
Wholesale trade 6.8 million 17.1% 3.1% 4.2%
Transportation and public Utilities 6.8 million 18.8% 3.0% 4.2%
Construction 5.9 million 39.6% 7.0% 4.2%
Mining 0.6 million declining 5.7% 4.2%
The services sector is the largest industry, in number of establishments and number of employees. The section accounts for 38.6 percent of all establishments. The service industry in an industry that provides a service rather than goods. This industry also showed a high amount of growth from 1990 to 1998, equal only to construction. Construction also had the highest unemployment rate in 1999, probably due to frictional unemployment as many construction workers often find themselves between projects, and are thus counted as unemployed while between jobs.
The great decrease in employment in the agricultural sector is an important phenomena in modern history. People who leave agriculture must not only give up their means of livelihood but also their residence and their way of life. This migration from a rural culture to an urban industrial one has involved many millions of people. For a long time the migration was chiefly toward the factories; as recently as 1930 it was imagined that the world of the future would be one huge factory, but this has proven untrue because, though the output of factories has continued to grow, factory employment has not increased. Employment in this sector in the United States reached its peak in the period from 1920 to 1970 at about one third of the labor force. Since then the expansion in employment in the US Has been in the tertiary sector; service trades, teaching, research, medical care, art, and tourism. Without that expansion technological progress would have led to much greater unemployment or to much reduced working hours. Since the beginning of the industrial revolution people have feared new machinery would lead to unemployment, with machines replacing people in their work. This fear often led to violent attacks on machinery, as in England in the 18th and early 19th centuries.17
There are two kinds of technological progress. First there is intensive progress, which involves an increase in the efficiency with which people exploit nature. Intensive progress results in a reduced need for workers. Another kind of progress, called extensive progress enlarges the exploitation of nature. The discovery of raw materials enlarges the framework of the economy, and the industrial development based on it creates new types of employment.18 The invention of a new product, such as the automobile has the same effect. In France more than 1,400,000 people make their livings from the automobile, for example, whether as factory workers, garage mechanics, or drivers.19 Intensive progress allows people to satisfy their existing needs with less labor; extensive progress, on the other hand, satisfies needs that either did not exist or were not satisfied previously and creates new jobs. However, the two types of progress do not automatically balance each other. In an economy that is not highly developed, technological progress in agriculture may allow the population to consume more food. In a more developed economy, one in which the standards of living are already at a high level, the same progress does not lead to increased food consumption; the end result may harmful with lower farm prices and unemployed agriculture workers. In a period of general technological progress, employment is likely to be unstable because production must adapt itself to the changing demands of the market. A dynamic economy requires a work force that is mobile enough to move out of sectors in which technological progress has reduced the need for labor and into sectors in which labor is in short supply. This migration is not pleasant for those involved, since it is inevitably accompanied by some degree of unemployment or underemployment. 20
Outside of the basic category of unemployment there are various degrees of non employment and underemployment. A period of inclement weather can put day laborers out of work, and they often receive no aid of any kind. In the rural areas of many countries there are large numbers of people who may be called underemployed because they do not have full-time work even though they are fully recognized as part of the labor force. In modern industrial societies the statistics of employment sometimes conceal substantial amounts of underemployment. This is because the unemployed may be brought into factories where they are not needed and have insufficient work to do. If the economy is a competitive one, each firm or enterprise has an incentive to keep its own operations efficient enough so that it makes a profit, and this tends to prevent the hiring and maintaining of surplus workers. 21
Since the end of World War II the governments of most of the developed countries have become committed to a program of reducing unemployment and underemployment. In France, for example, the constitution explicitly charges the state with assuring full employment.22 The Charter of the United Nations makes full employment a major objective of its members. Governments have followed various policies in pursuit of full employment. One general approach is to try to improve the quality of the labor supply. Another is to try to alleviate the effects of unemployment and underemployment. A third approach seeks to maintain economic activity at a high level through monetary and fiscal policies. Finally, there is the method of economic planning attempted in France, where the government planning commission sets targets for the various sectors of the economy that are linked to forecasts of manpower, in the belief that the difficult and complex problems of employment and unemployment cannot be separated from other problems of economic and social development. The first consistent efforts to deal with the instability of employment caused by technical and economic progress involved providing information on the state of the labor market and on the qualifications of those seeking work.23 Public employment services developed, particularly during the 1930's, which, on the basis of this information, were to direct applicants more efficiently to existing jobs or to help them prepare for occupations and careers in which labor needs seemed likely.24 Most of the large industrialized nations now have such agencies, which are designed to bring together the two sides of the labor market. The rapid progress of technology has required a raising of the qualifications of workers: the number of skilled laborers has increased more than that of the unskilled, technicians more than skilled laborers, and engineers more than technicians. In response to this trend, many governments in industrialized nations have endeavored to either provide or subsidize training programs for those members of the work force who might be able to benefit from them.25
The use of monetary and fiscal policies to keep the economy functioning at a high level of employment has been undertaken in a number of countries since the Great Depression. In periods of recession or of growing unemployment the government may increase demand by expanding the money supply or by increasing its own spending. This approach has some success in the United States during the 1960's when a major income tax reduction, tax incentives for business investment, and a large increase in federal expenditures brought the unemployment rate down to 3.5 percent in 1969. In the years that followed, however, the United States was faced with serious inflation, and government policies that were undertaken to stabilize prices had the effect of causing unemployment to rise.26
All of the developed countries try to soften the impact of unemployment through unemployment compensation. Unemployment insurance pays benefits to qualified workers who are unemployed and looking for work. Unemployment payments are intended to provide an unemployed worker time to find a new job equivalent to the one lost, without major financial distress. In the United States, the unemployment insurance program is based on a dual program of federal and state statutes. The program was established by the Federal Social Security Act in 1935. Much of the federal program is implemented through the Federal Unemployment Tax Act. Each state administers a separate unemployment insurance program with minimum guidelines established by federal statute. Who is eligible, the amount they receive, and the period of time benefits are paid are determined by each state.27
Lineberry, William P. The Challenge of Full Employment. The HW Wilson Company. New York. 1962.
Denk, James. The Downsizing of America. The New York Times. 1996.
Tiffany, Cowan, and Phyllis Tiffany. The Unemployed. Prentice Hall, Inc. NJ 1970.
Malabre, Alfred L. America's Dilemma: Jobs vs. Prices. Dodd, Mead and Company. NY. 1978.
Simon, Paul. Let's Put America Back to Work. Bonus Books. Chicago. 1987.
Cahn, William. A Pictorial History of American Labor. Crown Publishers, Inc. NY. 1972.
Bureau of Labor Statistics. Industry at a Glance. Online. Internet.
Available: 25 June 2000.
The Whitehouse at Work. Online. Internet. 8 January 1999.
Bureau of Labor Statistics. Monthly Labor Review. Economic Outlook November 1999. Online. Internet. Available:
The New Encyclopedia Britannica. Encyclopedia Britannica Inc. Chicago. 1990.
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