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Section 1 Unemployment

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Objectives

After studying this section you will be able to:

1. Describe frictional, seasonal, structural, and cyclical unemployment.
2. Describe how full employment is measured.
3. Explain why full employment does not mean that every worker is employed.

Section Focus

Even in good economic times, unemployment affects millions of Americans. The unemployment rate provides an important clue to the health of the entire economy.

Key Terms

• frictional unemployment
• seasonal unemployment
• structural unemployment
• cyclical unemployment
• census
• unemployment rate
• full employment
• underemployed
• discouraged worker

Unemployment is not just a personal issue. It is an issue for the national economy as well. Economists can measure how healthy the economy is at any given time by counting the number of people who are unemployed. Congress, the President, and other policymakers pay close attention to these statistics so they can take the necessary action to get people back to work.

Economists look at four basic kinds of unemployment: frictional, seasonal, structural, and cyclical. The various kinds of unemployment have different effects on the economy as well as on the people who are unemployed.

Frictional Unemployment

Unemployment always exists, even in a booming economy. Frictional unemployment occurs when people take time to find a job. For example, people might change jobs, be laid off from their current jobs, need some time to find the right job after they finish their schooling, or take time off from working for a variety of other reasons. In the following examples Hannah, Jorge, and Liz are all considered frictionally unemployed.

• Hannah was not satisfied working as a nurse in a large hospital. Last month she left her job to begin looking for a position at a small health clinic.
• Since Jorge graduated from law school three months ago, he has been interviewing with various law firms to find the one that best suits his needs and interests.
• Liz left her sales job two years ago to care for an aging parent. Now she is trying to return to the work force.

None of these three people found work immediately after beginning his or her search. While they are looking for work, they are considered frictionally unemployed. In an economy as large and diverse as that of the United States, economists expect to find many people in this category.

Unemployment insurance, which provides an income to laid-off workers seeking jobs, may contribute slightly to frictional unemployment. A worker receiving unemployment insurance faces less financial pressure to find a new job immediately.

Seasonal Unemployment

Gregory is a brick mason for a small construction company in the northeastern United States. Every winter Gregory's employer lays off all seven of his employees when cold weather forces an end to outdoor work. In the spring, he hires the workers back again to begin a new construction season. Gregory's yearly pattern of steady work followed by a predictable period of unemployment marks him as a seasonal worker.

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