What Is Unemployment?
3:43:1 2023-09-13 398

The term unemployment refers to a situation where a person actively searches for employment but is unable to find work. Unemployment is considered to be a key measure of the health of the economy.

The most frequently used measure of unemployment is the unemployment rate. It's calculated by dividing the number of unemployed people by the number of people in the labor force.

Many governments offer unemployment insurance to certain unemployed individuals who meet eligibility requirements.


  • Unemployment occurs when workers who want to work are unable to find jobs.
  • High rates of unemployment signal economic distress while extremely low rates of unemployment may signal an overheated economy.
  • Unemployment can be classified as frictional, cyclical, structural, or institutional.
  • Unemployment data is collected and published by government agencies in a variety of ways.
  • Many governments offer unemployed individuals a small amount of income through unemployment insurance, as long as they meet certain requirements.

How Unemployment Works

Unemployment is a key economic indicator because it signals the ability (or inability) of workers to obtain gainful work and contribute to the productive output of the economy. More unemployed workers mean less total economic production.

The unemployment definition doesn't include people who leave the workforce for reasons such as retirement, higher education, and disability.

Sign of Economic Distress

Unemployed workers must maintain at least subsistence consumption during their period of unemployment. This means that an economy with high unemployment has lower output without a proportional decline in the need for basic consumption.

High, persistent unemployment can signal serious distress in an economy and even lead to social and political upheaval.

Sign of an Overheating Economy

A low unemployment rate, on the other hand, means that the economy is more likely to be producing near its full capacity, maximizing output, driving wage growth, and raising living standards over time.

However, extremely low unemployment can also be a cautionary sign of an overheating economy, inflationary pressures, and tight conditions for businesses in need of additional workers.

Categories of Unemployment

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 their job willingly 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.


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