unemployment rate

DEFINITION: The term “unemployment” refers to the state of affairs in which an individual is actively seeking paid work but cannot find anyone willing to hire him.

The “unemployment rate” is calculated by dividing the number of unemployed individuals (as defined in the previous paragraph) by the total number of individuals available for participation in the labor force.

The unemployment rate is a crucial gauge of a country’s economic well-being. Indeed, it is one of the most-used metrics for the assessment of the real state of an economy.

The unemployment rate is also widely used by governments in calculations related to the provision of various services, such as determining the eligibility of individuals to receive payments out of unemployment insurance funds.

ETYMOLOGY: The number of unemployed persons began to be reported in census figures during the latter part of the nineteenth century. However, the phrase “unemployment rate” probably originated in economic research efforts undertaken during the Great Depression in the early 1930s by the Census Bureau and the Works Progress Administration (WPA).

The English nouns “unemployment” and “employment” are attested from the fifteenth century. The related verb “to employ” derives from Middle English emploien and Middle French emploier, meaning “to use” or “to employ.” The French verb derives from the Latin verb implico, implicare, meaning “to enfold,” “to entwine,” “to entangle,” or “to involve.”

The English now “ratio” is attested from the seventeenth century. It represents a direct borrowing of the Latin noun ratio, ratiōnis, meaning, in the relevant sense, “a reckoning,” “a computation,” or “a calculation.”

USAGE: The unemployment rate serves as a pivotal economic indicator, as it represents workers’ ability to obtain profitable employment and participate in the economy’s productive output. The higher the number of unemployed workers, the lower the overall economic output.

It is important to realize that the definition of unemployment economists use (as mentioned above) excludes individuals who have left the labor force due to factors like disability, pursuing advanced education, or retirement, or who have simply given up looking for work.

It is also worth noting that unemployed individuals must of course continue to eat and generally sustain a minimum level of consumption to meet their basic needs. This fact implies that an economy with a high unemployment rate must experience reduced output of goods and services, without a corresponding decrease in the necessity for essential consumption.

For this reason, sustained, elevated unemployment rates may indicate significant economic turmoil and potentially result in social and political unrest.

In contrast, a very low unemployment rate indicates that the economy is most likely operating close to its maximum potential, fostering wage expansion, and gradually improving living standards.

Nonetheless, excessively low unemployment may also serve as a warning sign of an economy that is overheating, leading to inflationary forces and challenging circumstances for businesses that would like to hire more workers.

While the definition of unemployment is clear, economists divide unemployment into many different categories.

The two broadest categories are voluntary and involuntary unemployment.

When unemployment is voluntary, it means that a person left his job of his own accord in search of other employment. When it is involuntary, it means that a person was fired or laid off and must now look for another job.