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What is Unemployment Rate? - Definition & History

Instructor: Paul Mckinney

Paul has been in higher education for 17 years. He has a master's degree and is earning his PhD in Community College Leadership.

The unemployment rate is the percentage of the total workforce that is unemployed and is looking for employment. The unemployment rate (high or low) can have a major impact on the economy and society.

Definition

The unemployment rate is defined as the number of unemployed persons divided by the labor force in a particular region, such as a state or country. The labor force is the number of unemployed persons plus the number of employed persons. More simply put, the unemployment rate is the percentage of the total workforce that is unemployed and is looking for employment. The unemployment rate is one of the most closely watched statistics because a rising rate indicates a weakening economy.

U.S. Unemployment History

The United States unemployment rate averaged 5.82 percent from 1948 until 2013, reaching a record low of 2.50 percent in May of 1953. The U.S. experienced its highest unemployment rate of 23% during the great depression of the 1930s.

Effects of High Unemployment Rates

Long-term unemployment can have serious ramifications for the individual and for the economy. People who are out of work for a long time lose their job skills and become less employable as time goes by. They also lose the motivation to look for work and become dissatisfied and depressed. Long-term unemployment can also be a burden upon taxpayers and social service systems. Below are a few of the negative consequences of a high unemployment rate:

  • Higher Foreclosure Rates: When people cannot pay their mortgage because they have lost their jobs, they risk losing their homes.
  • Put off Starting a Family: Couples are hesitant to marry, particularly in low-income communities, because they feel that it is unacceptable to marry without a steady job.
  • Increased Crime: During long periods of high unemployment, some communities deteriorate and crime rates increase.

Effects of Low Unemployment Rates

Low unemployment rate is good for the individual and the wider community in general. Those who work often feel better about themselves and can afford to spend more. With low unemployment rates, those who work can demand higher wages and feel more secure in their jobs. The economy benefits from increased activity and government agencies receive more tax dollars, which can then be spent on social programs. Below are some of the positive consequences of a low unemployment rate:

  • Strong Economy: When unemployment is low, it means that the economy is in good shape because there is demand for labor.
  • Lower Welfare Spending: During low unemployment the overall economy benefits from increased tax receipts and lower spending on welfare. More people working means fewer people claiming welfare.
  • Social Effects: Those who work generally feel better about themselves. The crime rate drops along with divorce and suicide rates.

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