LEARNING OBJECTIVES
After you have read this section, you should be able to answer the following questions:
What is the unemployment rate, and how is it measured?
What are the differences and the similarities in unemployment rates in the United States and Europe?
If the labor market functions perfectly, what is the rate of unemployment?
How does unemployment arise?
We begin by discussing the most commonly watched indicator of the state of the labor market: the unemployment rate. In the United States, the unemployment rate is measured by the Bureau of Labor Statistics (BLS; http://www.bls.gov/cps/home.htm). The BLS looks at the population of individuals of working age who are not in the military. It sorts such people into three separate categories:
- Employed.Individuals with a job, either full time or part time
- Unemployed.Individuals who do not currently have a job but are searching for employment
- Out of the labor force.Individuals who are not employed and not looking for work
Thus
civilian working age population = number employed + number unemployed+ number out of the labor force.
Those out of the labor force include students, stay-at-home parents, those who are prevented from working by disability, and people who have taken early retirement. The category also
includes discouraged workers, those who are deemed to have dropped out of the labor force because they have stopped looking for a job.
The civilian labor force comprises the employed and the unemployed. The unemployment rate is calculated as follows:
and the employment rate is calculated as follows:
In the United States, the definition of “employed” is fairly liberal. To be classified as employed, it is sufficient to have done any work for pay or profit in the previous week. People may even be counted as employed if they did not work during the week—for example, if they were on vacation, out sick, on maternity/paternity leave, or unable to work because of bad weather.
In this chapter, we explore differences in unemployment in the United States and Europe. To do this properly, we need to take care that unemployment is measured in a similar way within the sample of countries. The European Commission defines as unemployed those aged 15 to 74
- who were without work during the reference week, but currently available for work,
- who were either actively seeking work in the past four weeks or who had already found a job to start within the next three months. [***“Employment and Unemployment (LFS): Definitions,” European Commission, accessed July 31, 2011,http://epp.eurostat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/ methodology/definitions.***]
As in the United States, the unemployment rate is the number of people unemployed as a percentage of the labor force, and the labor force is the total number of people employed and unemployed.
The European Commission defines as employed those aged 15 to 74
- who during the reference week performed work, even for just one hour a week, for pay, profit or family gain,
- were not at work but had a job or business from which they were temporarily absent because of, e.g., illness, holidays, industrial dispute or education and training. [***“Employment and Unemployment (LFS): Definitions,” European Commission, accessed July 31, 2011,http://epp.eurostat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/ methodology/definitions.***]
These descriptions reveal that the definitions used in Europe are broadly similar to those in the United States, meaning that we can legitimately compare employment and unemployment rates in the two regions.
National and local governments help people cope with the risk that they might lose their jobs. In the United States and many other countries, unemployed people are typically eligible to receive payments from the government, called unemployment insurance, for some period of time after losing their jobs. Some governments help the unemployed find jobs and may even provide financial support to help people retrain and obtain marketable skills.
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