Unemployment

The first key to understanding unemployment is that not everyone has to have a job for this country to be considered fully employed. The federal government considers the population with the potential to work as everyone over the age of 16. But the labor force is not everyone over the age of 16.

The government does not consider you to be in the labor force if you are still in school, in the military, institutionalized in a mental hospital or prison, a homemaker, or not actively seeking work. The people who are not seeking work because they have struggled finding a job are considered discouraged workers.

Calculating Unemployment

It is important to remember the labor force is the number of people who are either employed or unemployed but are actively seeking work.

The first equation to consider when calculating unemployment is the labor force participation rate (LFPR), which is the share of population who are working or looking for work. LFPR is calculated using this equation:

LFPR = (Labor Force / Total population over 16) × 100

The unemployment rate, therefore, is the number of unemployed seeking work divided by the total of those with jobs and those actively seeking work.

Unemployment rate = Unemployed/Labor Force

Types of Unemployment

Now that you understand how unemployment is calculated we can look at the different types of unemployment people experience. There are basically three types of unemployment: frictional, structural, and cyclical.

  1. Frictional unemployment describes people who are between jobs, whether they have chosen to leave, have been laid off or fire, or are just entering the workforce out of school. For example, if you quit a job, move to a new location, or have recently graduated from school, you are experiencing frictional unemployment.
  2. If you have a skill set that is no longer needed in the marketplace because of increased trade from abroad or because of increases in technology, you are experiencing structural unemployment.
  3. Cyclical unemployment tends to be the worst kind of unemployment because workers must often learn new skills or seek additional education to be marketable in the labor force. For example, construction workers tend to be hired when the economy is good and fired/out of work when the economy is bad.

Another type of unemployment is seasonal unemployment, which is just another form of structural unemployment. If you have a job that is dependent on the seasons, like lifeguard or snow cone maker, you can expect periods of unemployment during the certain off seasons.

Unemployment in the U.S.

Reflecting on the situation in the United States in recent years, the unemployment rate has at times neared pre-2009 recession levels. However, there has been a significant decline in the number of people who are actually working, producing goods and services, and paying taxes to provide the services to those in need.

To understand this issue, watch the Wall Street Journal video, Why Unemployment Number Doesn't Tell Whole Story (2:45).

Calculating CPI

Keeping in mind the declining labor force participation rate and the declining unemployment rate, watch the video Are You Unemployed? (2:09) below to see if the creator agrees with the Wall Street Journal spokesman.

Open Are You Unemployed? in a new tab

Next, read PAGE ONE: Making Sense of Unemployment Data from the Federal Reserve Bank of St. Louis for more details on calculating the unemployment rate.