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Factors That Raise Unemployment Rates

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When you've lost your job, academic discussions of the unemployment rate and economic trends may have little appeal. You just want to get back to work! But an understanding of the larger forces at work may help you to plan your future. For example, if you have been recently laid off from your manufacturing job, you may want to get trained in a new career rather than wait around for another manufacturing job that may never come.

Ways to Measure Employment

We hear on the news that the U.S. unemployment rate is hovering near ten percent. This is considered very high. Historically in the U.S., the unemployment rate hovers around five percent-about half as much. In reality, the ten percent rate means that in the spring of 2010 there were about 6.1 million Americans who were classified as "long-term unemployed," that is, people who were out of work for longer than 27 weeks. But this figure does not include the millions more who are "underemployed" (working a part-time or low-paying job because nothing else was available) and those who want work but have given up looking. It also does not count those adults who are outside of the labor force, and have no job and are not looking for one. Many of these people are going to school, are retired, have family responsibilities, or have a physical or mental disability. Some simply elect not to work, preferring to be dependent on society for survival.

There are many ways to calculate the unemployment rate. Unemployed workers are typically defined as those who are currently not working but are both willing and able to work for pay, currently available to work, and have actively searched for work. The unemployment rate is expressed as a percentage, and is calculated as follows:

Unemployment rate = Unemployed workers / Total labor force

Some ways to calculate how many people are unemployed include:

  • Social insurance statistics are computed based on the number of persons collecting unemployment benefits. This method has been criticized because the long-term unemployed drop off the unemployment rolls and are no longer counted.
  • Labor force sample surveys capture the most complete and comprehensive results and enable calculation of unemployment by different group categories such as race and gender.
  • Public polling asks a random sample of people about their job status. The Current Population Survey (CPS), or Household Survey, is conducted by the United States Census Bureau and the Bureau of Labor Statistics. The survey gathers employment statistics monthly based on a sample of 60,000 households.
  • Official estimates are generated by a using a combination of data derived from one or more of the aforementioned methods.

What Creates Unemployment?

Discounting those people who choose not to seek employment, in modern industrialized nations it has been a historical reality that there is always some level of unemployment-that is, there are always some people who are seeking jobs. But there are several powerful forces that can create fluctuations in unemployment.

  1. Technology shifts. As recently as a few years ago, DVD rental companies like Blockbuster were growing and thriving because they capitalized on what was at the time an exciting new technology: movies on DVD that you could play at home. Now many of these same companies face layoffs and even bankruptcy because the technology is outdated.
  2. Recession. Even well-managed companies are vulnerable to larger economic downturns. A company that produces the best widgets in the world will suffer if their customers can no longer afford to buy them.
  3. External events. The U.S. airline industry is a classic example of an industry hammered by external events. The terrorist attacks of September 11 shut down the entire industry for a week, and the resulting security measures and fuel prices drove up costs in what was already a cost-heavy business.
  4. Competition. The U.S. auto industry failed to keep up with foreign competitors who were focused on quality and had lower cost structures. If you are a Detroit auto worker, you know that the auto business may recover, but it will never be the same as it was in 1980. If you can get training for another career field, it might be a good idea.