Seven factors contribute to unemployment. Frictional unemployment is caused by four factors. Those that leave their jobs in search of better ones are experiencing this form of unemployment. There are two reasons for structural unemployment. It occurs when the occupations that are available no longer meet the workers’ talents or financial needs. Cyclical unemployment is caused by the seventh factor.
There are pockets of frictional and structural unemployment even in a healthy economy. The natural rate of unemployment, according to the Federal Reserve, is between 4% and 5%. According to the Bureau of Labor Statistics, unemployed people are those who are without a job and have actively looked for one in the four weeks prior, as well as those who have been temporarily laid off from a work (BLS). If a person gives up seeking for work, the Bureau of Labor Statistics does not count them as being in the labor force.
There are four frictional unemployment causes.
The decision to leave the workforce willingly is one factor in unemployment. Some unemployed people have enough money saved up to leave unfulfilling occupations. They have the freedom to look about till they come across the ideal opportunity. The second reason is when employees move. Until they land a job in the new town, they are unemployed.
When new workers join the workforce is the third cause. Graduates of any higher education program, such as high school, college, or the military, are included in this. They hunt for employment that matches their updated abilities and credentials. It is a major contributing factor to youth unemployment.
When job seekers re-enter the workforce, that is the fourth reason. These are individuals who at some point in their life quit looking for employment. They might have taken time off from their jobs to have families, get married, or take care of aging relatives. The job search process will inevitably include these four factors. The good news is that temporary and voluntary frictional unemployment is frequently experienced.
The Structural Unemployment Has Two Reasons
neither voluntary nor temporary work is structural unemployment. The following two factors contribute to long-term unemployment. The sixth reason is the development of technology. Workers are then replaced by robots or computers. Before finding a new job in their field, the majority of these individuals need extra training.
Outsourcing of jobs is the sixth factor. When a business relocates its call centers or production to another nation. In nations where the cost of living is lower, labor costs are lower. After NAFTA was ratified in 1994, this situation developed in a number of states. Many manufacturing positions migrated to Mexico. That also happened once Chinese and Indian laborers acquired the skills required by US businesses.
What Leads to Cyclical Joblessness?
When there are fewer open positions than applicants, that is the eighth reason for unemployment. It is known as demand-deficient unemployment in technical terms. Cyclical unemployment refers to when it occurs during the business cycle’s recessionary stage.
Cycles of unemployment are caused by low consumer demand. When demand declines, businesses suffer excessive profit losses. They must let employees go if they don’t think sales will increase quickly. It is cyclical because rising unemployment causes consumer demand to decline even further. Large-scale unemployment is the result. Examples include the 1929 Great Depression and the 2008 financial crisis.
Minimum Wage Increases and Supply-Side Unemployment
When wages are too high, demand-deficit unemployment can occasionally develop. It is one of the defenses raised against raising the minimum wage. Opponents claim that when companies are compelled to pay a greater wage per employee, they are obliged to let rid of other employees.
Note
That is accurate for some price-sensitive sectors. However the majority of businesses can charge their clients for the fee.
Not all reasons for unemployment result in unemployment
but the BLS does not include someone in the unemployment rate if they give up looking for job. Retirement, returning to school, or leaving the workforce to care for family members do not constitute being unemployed because the individual no longer actively seeks employment. The BLS does not count someone as unemployed even if they would prefer a job until they have looked in the last month.
Marginally unemployed people are those who have looked for work during the past year but not within the preceding month. Others claim that the government undercounts unemployment by publishing the official rate rather than the “actual” rate; more generally known as the “real unemployment rate.”
Main Points
According to the BLS, being unemployed means that you haven’t found a job but have been seeking for one for the previous month. The unemployed labor force does not include people who have given up looking for work.
Frictional, structural, cyclical, or demand-deficit types of unemployment can all exist.
The natural unemployment rate ranges from 4% to 5%.
A significant economic indicator is unemployment. High unemployment rates may be a sign of a struggling economy. On the other hand, extremely low unemployment rates can denote an overheated economy.
Questions and Answers (FAQs)
Who counts as being unemployed?
According to the BLS, unemployed people are individuals who have actively looked for work over the last four weeks while they are unemployed and are available for employment. No matter whether they have been actively looking for employment or not, it also includes employees who have been temporarily laid off but anticipate returning to the workforce.
Who is eligible for unemployment compensation?
A person must be jobless “by no fault of their own,” have worked during a particular time period, meet the state’s minimum wage criteria, and be actively looking for work in order to be eligible for unemployment benefits. Although some states have extra standards, these are the minimal federal requirements.