What is Unemployment? - Definition, Causes & Effects

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  • 0:01 What Is Unemployment?
  • 0:27 Causes of Unemployment
  • 2:23 Impact of Unemployment
  • 3:16 Lesson Summary
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Lesson Transcript
Instructor: Carol Woods

Carol has taught college Finance, Accounting, Management and Business courses and has a MBA in Finance.

What is unemployment? If you are currently out of work, you certainly know what this is. But the government has a specific way of looking at unemployment, and you might actually not be considered unemployed by its definition! Read on to learn why.

What Is Unemployment?

Unemployment represents the number of people in the work force who want to work but do not have a job. It is generally stated as a percentage and calculated by dividing the number of people who are unemployed by the total work force.

The work force is made up of those people who want to work; it excludes people who are retired, disabled, and able to work but not currently looking for a position; for instance, they may be taking care of children or going to college.

Causes of Unemployment

The government defines those who want to work as people who have actively looked for work within the past four weeks and determines the number of people currently unemployed through a monthly survey called the Current Population Survey.

People can be unemployed for many reasons:

  • They quit their position and are looking for a new one.
  • They were laid off due to lack of work and haven't yet been rehired.
  • Their company reduced the work force, and they are seeking a new position. This can be due to a local condition, when the company closes a plant or division, or a national condition, when the economy slows and many companies reduce their work force.
  • They have recently returned to the work force - perhaps from pregnancy or attending school - and haven't yet located a position.
  • The need for their skill set has gone down, and there are limited positions available, which may lead to unemployment until they train for a new position.
  • Technology has reduced the need for their type of position.

Now, let's try a quick quiz. Pretend you receive a call from the Current Population Survey. You are currently in school and not working, although you have started applying for positions that you would start after graduation. Would they classify you as unemployed? And the answer is…no, you would not be considered unemployed, because you are not currently available for full-time work.

Next question. You were laid off by your company three months ago. Although you are willing to work, you have gotten discouraged and haven't applied for any positions for the last six weeks. Would they classify you as unemployed? And the answer is…no, you would not be considered unemployed, because you have not actively been seeking work in the last four weeks.

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