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Unemployment is when people are unable to find jobs at the prevailing wages for their skills and experience. Economists refer to this as "involuntary unemployment."


After reaching a low of 4.1% in October, 2006, the U.S. unemployment rate has been trending upward, reaching 9.5% in June 2009. It will continue rising for several more months. Unemployment normally peaks a few months after the economy reached bottom and starts going up again.

Weekly estimates of unemployment use the number of persons filing new claims for unemployment insurance (UI) benefits. Much more accurate data is based on large scale interview surveys, and is reported on the first Friday of the following month. Since 1940 the monthly Current Population Survey (CPS) has been used. [1]


Three types of unemployment can be distinguished by their causes. Frictional unemployment is the normal churning of the job market; people enter the labor force from school or home, and spend time looking for the best job. Seasonal unemployment refers to jobs that operate at certain seasons, especially in the construction and tourism industries. Teachers in the summertime are not counted as unemployed. The "normal unemployment rate" (frictional plus seasonal) is about 3% to 4%. Unemployment insurance is designed to help people face frictional and seasonal unemployment.

Structural unemployment means a mis-match of jobs and workers. For example, there may be jobs in the cities and unemployment in mining or logging areas, but people are reluctant to move because of family ties. There may be jobs available in some fields but people who are unemployed lack the necessary skills. This is a structural problem solved by migration, job training and education. Some structural unemployment is caused by policies such as the minimum wage.

Finally--and most serious--is cyclic unemployment (as in 2008-2009 and the Great Depression), when the whole economy is sagging and businesses lay off tens of thousands of workers every day. A few new jobs are created every month but they are overwhelmed by the jobs that are lost. In February 2009, the U.S. economy lost 651,000 jobs net (that is, jobs that disappeared outnumbered jobs that were created by 641,000). Through April 30, 2009, about 5.7 million jobs were lost in 2008-9.

update for April 2009
US job losses January 1-March 31, 2009

Natural rate of unemployment

Milton Friedman in 1968 itroduced the concept of the "natural rate of unemplyment," which is the rate generated by the economy which does not cause inflation or deflation.

Friedman notes:

All of the progress that the US has made over the last couple of centuries has come from unemployment. It has come from figuring out how to produce more goods with fewer workers, thereby releasing labor to be more productive in other areas. It has never come about through permanent unemployment, but temporary unemployment, in the process of shifting people from one area to another.[2]

See Also

Further reading

  • Blanchard, Olivier J. "European Unemployment: The Evolution of Facts and Ideas," Economic Policy, Vol. 21, No. 45, pp. 5-59, January 2006
  • Layard, Richard, etr al. Unemployment: macroeconomic performance and the labour market‎ (2005) 623 pages excerpt and text search
  • Marshalle, Mary I. Economics of unemployment‎ (2006) 230 pages excerpt and text search