Some Americans woke up in 2014 without their unemployment benefits due to Congressional negotiation last December which led to the ending of some unemployment extensions. Now it seems that unemployment extensions are back on the table. But what exactly does it mean to be unemployed? The answer isn’t so simple.
The simplest definition of unemployed is someone over the age of 16 who is actively looking for a job and doesn’t have one. But economists like to think of unemployment in a few ways to help understand an unemployment problem and perhaps find a solution:
Voluntary/Involuntary: This is simply a distinction between someone who willingly left their job and someone that was forced to leave (through firing, layoff, downsizing, etc…). Voluntary unemployment is OK, so we really care about the ones with involuntary unemployment.
Cyclical: The economy runs in cycles. It has its up years and its down years. When the economy is running hot, jobs are easier to find. But when a recession hits, layoffs aren’t far behind. Tackling this problem is indirect. If cyclical unemployment is the problem, then you may need to stimulate the economy and not try to create jobs directly.
Frictional: This type of unemployment is the most common when the economy is stable. Say you quit your job and it takes you 4-6 weeks to find a new one. The time in between if frictional unemployment. More simply, frictional unemployment isn’t economic, it’s just the time it takes to find a new job. The more efficient a job market is (better matching employers and employees), the lower frictional unemployment would be.
Structural: This is perhaps the worst kind of unemployment. Structural and cyclical unemployment are what we hear about in the news most often. Structural unemployment is when you don’t have the skills to meet the demands of employers. Say a tech company moves into an area with high unemployment but no one with technology skills. Unemployment isn’t likely to fall because workers and employers don’t have a skills match. The solution is usually some kind of job training, but that can be expensive and it’s difficult to commit to something new unless you know the payoff is there. The skills gap creates structural unemployment. The solution for any individual is to always have some skills that are in high demand.
These are the ways that economists like to think about unemployment. But some are difficult to measure. So when we talk about measuring unemployment there are very different categories to think about. For this exercise we’ll use the official measure for unemployment here in the US, which comes from the Bureau of Labor Statistics.
- U1: These are people who have been unemployed for 15 weeks or longer.
- U2: These are people who lost their jobs, plain and simple.
- U3: This is the official number, the one you see in the headlines. Basically, it’s anyone without a job that’s actively looking.
- U4: Everything above plus discouraged workers. Discouraged workers stop looking for work usually due to cyclical reasons, thinking there are no jobs.
- U5: Everything above plus loosely attached workers. These are people who would like to and are able to work, but haven’t looked as recently.
- U6: Everything above plus part-time workers looking to work full time. Sometimes called underemployment.
Believe it or not, there are lots more measures of unemployment than this. But this gives you a feel of how economists think about unemployment, and measure it. One of the key things to remember is simply because someone doesn’t have a job, it doesn’t make them unemployed. Student, retirees, at-home parents… none of these people are considered in the official unemployment numbers.