Unemployment
The standard definition of an unemployed person is one that is seeking employment but has not found an income producing opportunity. There are variations on the exact wording but the idea is generic - a person wants to work but cannot find a job. The reasons why a particular person is "out of work" are myriad: fired from the last job; laid off from the last job; fresh out of college and looking for the first job; re-entering the workforce after staying home and raising children; retirees seeking post-retirement employment.
The Unemployment Rate is a measure of those looking for work compared to the "labor force" - the full number of people looking for and having employment. The rate is calculated as the number of unemployed divided into the labor force. For example if the labor force has 100 people and 5 are unemployed, then the unemployment rate is 5 percent.
The labor force is the sum of those that are working and those that are looking for work. A large part of the population is not included in the workforce - children, students, those staying home to rear children, retirees, and so on. Those not in the labor force either cannot work or can work but are not seeking work (a student for example).
The unemployment rate varies and is an integral part of the overall economic picture. A zero percent unemployment rate is not desirable. It does sound perfect in that everyone that wants to work - is working. However, the lower the unemployment rate, the more likely for the rate of inflation to increase. Why? When there is an excess of disposable income there is more demand for goods and services. The supply of these goods and services lowers. This creates higher prices. Prices that rise too fast create inflation.
Flipping the other way, an unemployment rate that is high is keyed with recessionary effects in the economy. If a large enough number of people cannot buy goods and services then prices head downward. There is more supply then demand. When this occurs various undesirable situations occur, such as manufacturers laying off workers as they reduce or stop output at their factories. The laid-off workers add to the unemployed and the situation worsens - a cycle of high unemployment creating more unemployment.
This cycle does not sustain itself, usually because of purposeful interventions. The Fed will lower the prime lending rate. This encourages companies to borrow and expand production and R&D (research and development). Expansion means more workers are needed. Companies start to hire back workers. More people now have disposable income and spend more. Spending increases demand and prices come back up. Recession ends as growth occurs.
Historically another influence alters unemployment - technology. As new inventions or discoveries are introduced more jobs are created. This has been the case with the invention of the automobile, the airplane, and computers. Related non-tangibles such as the Internet also create jobs.
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The Unemployment Rate is a measure of those looking for work compared to the "labor force" - the full number of people looking for and having employment. The rate is calculated as the number of unemployed divided into the labor force. For example if the labor force has 100 people and 5 are unemployed, then the unemployment rate is 5 percent.
The labor force is the sum of those that are working and those that are looking for work. A large part of the population is not included in the workforce - children, students, those staying home to rear children, retirees, and so on. Those not in the labor force either cannot work or can work but are not seeking work (a student for example).
The unemployment rate varies and is an integral part of the overall economic picture. A zero percent unemployment rate is not desirable. It does sound perfect in that everyone that wants to work - is working. However, the lower the unemployment rate, the more likely for the rate of inflation to increase. Why? When there is an excess of disposable income there is more demand for goods and services. The supply of these goods and services lowers. This creates higher prices. Prices that rise too fast create inflation.
Flipping the other way, an unemployment rate that is high is keyed with recessionary effects in the economy. If a large enough number of people cannot buy goods and services then prices head downward. There is more supply then demand. When this occurs various undesirable situations occur, such as manufacturers laying off workers as they reduce or stop output at their factories. The laid-off workers add to the unemployed and the situation worsens - a cycle of high unemployment creating more unemployment.
This cycle does not sustain itself, usually because of purposeful interventions. The Fed will lower the prime lending rate. This encourages companies to borrow and expand production and R&D (research and development). Expansion means more workers are needed. Companies start to hire back workers. More people now have disposable income and spend more. Spending increases demand and prices come back up. Recession ends as growth occurs.
Historically another influence alters unemployment - technology. As new inventions or discoveries are introduced more jobs are created. This has been the case with the invention of the automobile, the airplane, and computers. Related non-tangibles such as the Internet also create jobs.
Read more: