• home
• archive
• graph library
• about

Unemployment

What is Unemployment?
Unemployment is a measure of people who are part of the labour force, and are not employed, but are looking for work. In term of the official statistics people who are unemployed but not looking for work are classified as not in the labour force; thus the participation rate will change over time and reflects in-part this aspect. The unemployment rate is the percentage of the labour force that is classified as unemployed. Thus the unemployment rate can be changed by increases in the labour force due to increases in the participation rate, and the number of persons classified as unemployed can fall if those persons stop looking for work and thereby leave the labor force. But overall the point is to measure the proportion of people that are out of work (under-utilised human capital).

How does it relate to Markets?
Employment is inextricably linked with the state of an economy, employment can be an ex post indicator; i.e. a symptom of where the economy is e.g. falling employment is symptomatic of a recession. But it can also be a leading indicator given its impact on consumer confidence, the housing market, consumer credit, retail sales; and by extension the wider economy i.e. aggregate demand levels. Another consideration is that if the unemployment rate drops below the NAIRU (see below), then it will have implications for the rate of inflation in an economy.

Full employment and NAIRU
NAIRU (Non-Accelerating Inflation Rate of Unemployment) is the rate of unemployment below which inflation rises. This is where employment comes into the monetary policy puzzle where there can be a trade-off between inflation, employment, and economic growth.

Types of Unemployment
Cyclical - unemployment tends to reduce in times of economic growth and increase during recession.
Seasonal - unemployment can change depending on the season or periodic events e.g. census, agriculture, tourism, etc.
Frictional - unemployment that occurs when an individual is between jobs i.e. not employed, but in the process of finding a new job.
Structural - unemployment relating to changes in technology, cost structures, shifting of comparative/competitive advantage etc, e.g. car industry where automation resulted in redundancy.

Sources and further reading:
OECD Statistics - Unemployment Rates and Levels
Economy Watch - Unemployment
Bloomberg - US Unemployment Rate (SA)
Estimating the Structural rate of Unemployment for the OECD Countries
Library of Economics and Liberty - Employment and Unemployment
Library of Economics and Liberty - Philips Curve
Encyclopedia Britannica - Full employment

Graph Library:
Metric - Unemployment

Original Source: http://www.econgrapher.com/encyclopedia-unemployment.html

 Back to the Econ Grapher Encyclopedia