Chapter 21: Unemployment
Unemployment imposes severe costs — financial stress on individuals and families, and wasted resources for the entire economy. This chapter explains how economists define and measure unemployment, examines historical patterns across demographic groups and countries, explores why wages can be “sticky downward” (causing involuntary unemployment in recessions), and distinguishes between short-run cyclical unemployment and the long-run natural rate of unemployment.
Table of Contents
1. How Economists Define and Compute the Unemployment Rate
1.1 The Three Categories of Adults
The adult population (age 16+) is divided into three groups — not just “employed” and “unemployed”:
- Employed: Currently working for pay
- Unemployed: Out of work, currently available to work, and actively looking for work in the previous four weeks
- Out of the Labor Force: Not working and not actively looking for work — includes retirees, stay-at-home parents, full-time students, discouraged workers, and others who have stopped searching
The labor force = Employed + Unemployed (i.e., it excludes those “out of the labor force”).
Labor Force Classification Flowchart
1.2 Key Formulas
\[\text{Unemployment Rate} = \frac{\text{Unemployed}}{\text{Labor Force}} \times 100\] \[\text{Labor Force Participation Rate} = \frac{\text{Labor Force}}{\text{Adult Population}} \times 100\]November 2021 U.S. Data:
| Category | Number | Share |
|---|---|---|
| Total adult population (16+) | 262.029 million | 100% |
| In the labor force | 162.052 million | 61.8% |
| — Employed | 155.175 million | |
| — Unemployed | 6.877 million | |
| Out of the labor force | 99.977 million | 38.2% |
\(\text{LFPR} = \frac{162.052}{262.029} \times 100 = 61.8\%\)
Important: The unemployment rate is the percentage of the labor force without jobs — not the percentage of the total adult population. A person must be actively looking for work to be counted as unemployed.
1.3 Hidden Unemployment
The official unemployment rate understates true joblessness because of:
| Hidden Category | Issue |
|---|---|
| Underemployed | Working part-time but want full-time; or working below their skill level (e.g., finance graduate working as sales clerk) |
| Discouraged Workers | Want a job but have stopped looking due to lack of suitable positions — counted as “out of the labor force,” not unemployed |
| Involuntary Part-Time | Have only temporary or part-time jobs but seeking permanent full-time employment — counted as employed |
1.4 How Unemployment Data Is Collected
| Survey | Conducted By | What It Measures | Method |
|---|---|---|---|
| Current Population Survey (CPS) | U.S. Census Bureau | Unemployment rate | Monthly survey of ~60,000 households (729 of 3,137 geographic areas) |
| Establishment Payroll Survey (EPS) | Bureau of Labor Statistics | Net change in jobs created | Survey of ~147,000 businesses and government agencies |
The CPS has been conducted every month since 1940. The EPS does not count the self-employed and does not distinguish between minimum-wage part-time jobs and full-time positions.
1.5 Labor Force Participation Rate Trends
| Period | Trend | Key Driver |
|---|---|---|
| 1960s–2000 | Rising (peaked at ~67%) | Women increasingly entering workforce |
| 2000–2008 | Gradual decline (~66%) | Baby boomers beginning to retire |
| 2008–2010 | Sharper decline | Great Recession |
| 2010s | Slow recovery | Aging population |
| March 2020 | Sharp drop | COVID-19 pandemic |
| As of early 2022 | Below pre-pandemic levels | Health concerns, caregiving, early retirements |
2. Patterns of Unemployment
2.1 Historical U.S. Unemployment
Five key patterns emerge from U.S. unemployment data since 1948:
- Rates fluctuate with the business cycle — reaching ~10% in deep recessions (early 1980s, 2009, 2020) and ~25% during the Great Depression
- Rates were quite low in the late 1990s–2000s (<5% from 1997–2000) and from September 2015 through March 2020
- The rate never falls to zero — it almost never drops below 3%, and only briefly
- Unemployment lags the business cycle — it rises during recessions and falls during expansions, but with a delay, especially during recoveries
- No long-term trend — despite quadrupling of the U.S. population, women’s entry into the workforce, globalization, and new technology, no sustained upward or downward trend exists
2.2 Unemployment by Demographic Group
| Dimension | Pattern |
|---|---|
| Gender | Historically higher for women; equalized by ~1980; women’s rate exceeded men’s during 2020 pandemic |
| Age | Highest for young workers (16–24); lowest for 55+ (many retire and exit labor force) |
| Race/Ethnicity | Black rate typically ~2× White rate; Hispanic rate falls in between; gaps narrowed in 1990s–2000s |
| Education | Higher education → lower unemployment (Nov 2021: college 2.3%, some college 3.7%, high school 5.2%, no diploma 5.7%) |
2.3 Reasons for and Duration of Unemployment
Reasons for Unemployment (November 2021):
| Reason | Percentage |
|---|---|
| Job Losers: Non-Temporary | 37.3% |
| Re-entrants | 31.8% |
| Job Leavers | 12.5% |
| Job Losers: Temporary | 11.8% |
| New Entrants | 6.5% |
Duration of Unemployment (November 2021):
| Length | Percentage | |—|—:| | Under 5 weeks | 22.3% | | 5–14 weeks | 22.3% | | 15–26 weeks | 17.6% | | Over 27 weeks | 37.7% |
2.4 International Comparisons
| Country | 1991 | 1996 | 2001 | 2006 | 2019 |
|---|---|---|---|---|---|
| United States | 6.8% | 5.4% | 4.8% | 4.4% | 3.7% |
| Canada | 9.8% | 8.8% | 6.4% | 6.2% | 5.7% |
| Japan | 2.1% | 3.4% | 5.1% | 4.5% | 2.4% |
| France | 9.5% | 12.5% | 8.7% | 10.1% | 8.5% |
| Germany | 5.6% | 9.0% | 8.9% | 9.8% | 3.1% |
| Italy | 6.9% | 11.7% | 9.6% | 7.8% | 10.0% |
| United Kingdom | 8.8% | 8.1% | 5.1% | 5.5% | 3.9% |
Caution with International Comparisons: Each country has different definitions of unemployment, survey methods, and labor market structures. Japan’s unusually low rate partly reflects workers quickly exiting the labor force when they lose jobs, and firms retaining workers on reduced hours.
3. Short-Run Unemployment: Cyclical Unemployment and Sticky Wages
3.1 Cyclical Unemployment
Cyclical Unemployment: Unemployment that rises during recessions and falls during economic expansions — it closely tracks the business cycle.
When firms perceive a slowing economy, they reduce hiring → labor demand curve shifts left → unemployment rises. In a perfectly flexible labor market, wages would simply fall to clear the market. But in reality, wages tend to be sticky downward.
3.2 Why Wages Are Sticky Downward
In a competitive market with flexible wages, there should be no involuntary unemployment — wages would adjust until labor supplied equals labor demanded. But wages often don’t fall, even during recessions. Five theories explain why:
| Theory | Key Idea |
|---|---|
| Implicit Contracts | Unwritten agreement: employer won’t cut wages in bad times; employee won’t demand huge raises in good times. Acts like insurance for workers, but means employers hesitate to cut wages. |
| Efficiency Wage Theory | Workers paid above-market wages are more productive — they fear losing their well-paying job, work harder, and stay longer. Employers avoid cuts to maintain motivation and reduce turnover costs. |
| Adverse Selection of Wage Cuts | If wages are cut across the board, the best workers (with the best outside options) leave first, while the least productive stay. Firms prefer layoffs over universal wage cuts. |
| Insider-Outsider Model | Current employees (“insiders”) know procedures and train new hires. Cutting their wages alienates them, damaging productivity. Firms protect insiders at the cost of not hiring outsiders. |
| Relative Wage Coordination | Workers might accept wage cuts if everyone took a cut, but there’s no mechanism to coordinate this. Each worker fears being worse off relative to others, so all resist cuts. |
3.3 The Sticky-Wage Model of Unemployment
How Sticky Wages Create Unemployment:
- The economy enters a recession → labor demand shifts left (from $D_0$ to $D_1$)
- In a flexible market, wages would fall from $W_0$ to $W_1$, and employment would adjust
- But wages are sticky at $W_0$ — they don’t fall
- At wage $W_0$, quantity of labor supplied ($Q_s$) > quantity demanded ($Q_d$)
- The gap ($Q_s - Q_d$) = unemployment
Note: Wages can rise easily (workers gladly accept raises and it boosts morale). The stickiness is asymmetric — downward only.
Sticky-Wage Unemployment Diagram
Worked Example: Measuring the Unemployment Gap
Suppose the labor market has:
- Labor supply: $W = 10 + 0.05L$
- Original demand: $W = 50 - 0.05L$
- Recession demand: $W = 40 - 0.05L$
Original equilibrium ($D_0 = S$): \(10 + 0.05L = 50 - 0.05L \implies 0.1L = 40 \implies L_0 = 400, \; W_0 = \$30\)
New equilibrium if wages were flexible ($D_1 = S$): \(10 + 0.05L = 40 - 0.05L \implies 0.1L = 30 \implies L_1 = 300, \; W_1 = \$25\)
But wages are sticky at $W_0 = $30$:
- $Q_s$ at $W_0$: $30 = 10 + 0.05L_s \implies L_s = 400$
- $Q_d$ at $W_0$ on $D_1$: $30 = 40 - 0.05L_d \implies L_d = 200$
With flexible wages, only 100 workers would lose jobs (400 → 300). Sticky wages doubled the unemployment to 200.
Key Connection: Cyclical unemployment = recessions shift labor demand left + sticky wages prevent market clearing → gap between workers wanting jobs and available jobs.
4. Long-Run Unemployment: The Natural Rate
4.1 What Is the Natural Rate?
Natural Rate of Unemployment: The unemployment rate that persists even when the economy is healthy and growing — resulting from the combination of economic, social, and political factors, assuming neither boom nor recession. It consists of frictional and structural unemployment.
4.2 Frictional Unemployment
Frictional Unemployment: Unemployment that occurs as workers move between jobs in a dynamic economy. It takes time to learn about new jobs, interview, relocate, and find a good match.
- Accounts for approximately 1–2 percentage points of total unemployment
- Not inherently bad — reflects a healthy process of matching workers to suitable jobs
- Influenced by: ease of job-search communication, willingness to relocate, age distribution
Age and Frictional Unemployment: Young workers (under 25) try different jobs and career paths, leading to higher job mobility and frictional unemployment. Prime-age workers (25–54) tend to stay in jobs longer. Older workers who lose jobs often retire, exiting the labor force entirely.
4.3 Structural Unemployment
Structural Unemployment: Unemployment caused by a mismatch between workers’ skills and the skills employers demand — either because demand has shifted away from certain skills, or because workers never acquired valued skills.
Examples:
- Aerospace engineers after the U.S. space program downsized in the 1970s
- High school dropouts who lack basic skills valued by employers
- Coal miners displaced by environmental regulations and shifting energy markets
Education is key to minimizing structural unemployment — workers with degrees can be retrained more easily.
4.4 Full Employment and Potential Real GDP
| Condition | Unemployment Rate vs. Natural Rate | Real GDP vs. Potential GDP |
|---|---|---|
| Full employment | Actual = Natural | Real GDP = Potential |
| Below full employment | Actual > Natural | Real GDP < Potential |
| Above full employment | Actual < Natural (temporary) | Real GDP > Potential |
Operating above potential GDP is only possible for a short while — analogous to all workers working overtime.
4.5 Productivity Shifts and the Natural Rate
1970s: Unexpected Productivity Slowdown
- Output per hour grew 3.3%/year (1960–1973) then fell to 0.8% (1973–1982)
- Wages kept rising based on old expectations → labor became “overpriced”
- Labor demand stalled but wages didn’t adjust → natural rate of unemployment rose
- Unemployment didn’t fall below 7% from May 1980 until 1986
Late 1990s: Unexpected Productivity Surge
- Productivity growth jumped from 1.7% (1980–1995) to 2.6% (1995–2001)
- Wages hadn’t yet adjusted upward → labor was “underpriced”
- Firms wanted more workers at the prevailing wage → unemployment fell below 4.5% (1998–2001)
4.6 Public Policy and the Natural Rate
Supply-side policies affecting workers’ eagerness to find work:
- Generous unemployment insurance and welfare benefits → higher opportunity cost of finding work → higher natural rate
- Duration matters more than amount — benefits lasting years create more disincentive than generous but short-term benefits
- U.S. unemployment insurance: joint federal-state program (since 1935), typically 26 weeks, benefits ≈ ⅓ of previous wage
| State | Max Weekly Benefit | State | Max Weekly Benefit |
|---|---|---|---|
| Washington | $929 | Florida | $275 |
| Massachusetts | $823 | Alabama | $275 |
| Minnesota | $740 | Arizona | $240 |
| New Jersey | $713 | Mississippi | $235 |
Demand-side policies affecting firms’ willingness to hire:
- Bureaucratic red tape for starting businesses → discourages hiring
- Strict firing/layoff rules → firms hesitate to hire (prominent in Europe)
- High minimum wages → discourage hiring low-skill workers
- Powerful unions → push up wages but discourage hiring
4.7 The Natural Rate in Recent Years
The U.S. natural rate has declined over recent decades (estimated at ~4.5–5.5% in the early 2000s, ~4.6% as of Q1 2022). Three reasons:
- Internet job search — LinkedIn, job boards make matching far easier than phone calls and newspaper ads
- Temp worker industry growth — from 0.5% of workers in the 1980s to 2%+ in the 2000s, serving as stepping stones and clearinghouses
- Aging baby boomers — fewer young workers (who have higher frictional unemployment) relative to stable middle-aged workers
4.8 Europe’s Higher Natural Rate
Many European countries have unemployment rates hovering near 10% or higher even during good economic years. The cause is not deeper recessions but higher natural rates driven by:
- Generous welfare and unemployment benefits lasting longer
- Laws requiring months of notice before layoffs (3+ months in Spain, Germany, Denmark, Belgium)
- Legally required severance packages (up to a year’s salary in Austria, Spain, Portugal, Italy, Greece)
- These make firms reluctant to hire — since it’s very costly to fire
5. Key Takeaways
- The unemployment rate = unemployed / labor force — it does not include those “out of the labor force”
- Hidden unemployment (discouraged workers, underemployed, involuntary part-time) means the official rate understates true joblessness
- U.S. unemployment has fluctuated between ~4–10% since 1948, with no long-term trend up or down
- Unemployment varies by group: higher for young workers, less-educated workers, and Black and Hispanic workers
- Cyclical unemployment rises in recessions because of sticky wages — five theories explain why wages resist falling
- The natural rate consists of frictional unemployment (job transitions) and structural unemployment (skills mismatch)
- Full employment doesn’t mean zero unemployment — it means the actual rate equals the natural rate
- Government policies (unemployment insurance, labor regulations, hiring rules) can raise or lower the natural rate
- European countries tend to have higher natural rates due to stricter labor market regulations
6. Practice Questions
Q1. In a country, the adult population is 200 million, 120 million are employed, 10 million are unemployed, and the rest are out of the labor force. Calculate the unemployment rate and the labor force participation rate.
Answer
Labor force = 120M + 10M = 130M Unemployment rate = $\frac{10}{130} \times 100 = 7.7\%$ LFPR = $\frac{130}{200} \times 100 = 65.0\%$ Out of the labor force = 200M − 130M = 70M (35% of adult population)Q2. Explain why the unemployment rate can fall even while the number of employed people stays the same.
Answer
If unemployed workers become **discouraged** and stop looking for work, they are reclassified as "out of the labor force" rather than unemployed. This reduces both the numerator (unemployed) and the denominator (labor force), causing the unemployment rate to fall — even though no one actually found a job. This is why economists also track the labor force participation rate and broader measures of underemployment.Q3. A finance graduate working as a retail cashier is counted as employed. Is this accurate? What concept does this illustrate?
Answer
Technically the person is "employed" by the BLS definition (working for pay). But this illustrates **underemployment** — the worker is employed in a job below their skill level and training. This is part of **hidden unemployment** that the official unemployment rate fails to capture.Q4. Distinguish between cyclical and frictional unemployment with examples.
Answer
**Cyclical unemployment** is caused by recessions — when the economy contracts, demand for labor falls. Example: construction workers laid off during the 2008 housing crash because building projects were cancelled. **Frictional unemployment** occurs as workers voluntarily transition between jobs in a healthy economy. Example: a software engineer who quits a job in Seattle to search for a position in Austin, spending several weeks networking and interviewing. The key difference: cyclical unemployment is involuntary and systemic; frictional unemployment is a normal, often voluntary part of a dynamic economy.Q5. Name and briefly explain three theories for why wages are sticky downward.
Answer
1. **Efficiency wage theory** — employers pay above-market wages to motivate workers and reduce turnover; cutting wages would reduce productivity and increase costly employee departures 2. **Adverse selection of wage cuts** — across-the-board cuts cause the best workers (with the best outside options) to leave, while the least productive stay; firms prefer selective layoffs 3. **Implicit contracts** — unwritten agreements that employers won't cut wages in bad times in exchange for workers not demanding huge raises in good times; violating this trust damages moraleQ6. Using the sticky-wage model, explain what happens in the labor market when the economy enters a recession.
Answer
1. Recession reduces firms' demand for labor → labor demand curve shifts **left** (from $D_0$ to $D_1$) 2. In a flexible-wage market, wages would fall to a new equilibrium with lower employment but no involuntary unemployment 3. But wages are sticky at the original level $W_0$ — they don't adjust downward 4. At $W_0$, the quantity of labor **supplied** exceeds the quantity **demanded** 5. This gap = involuntary unemployment (workers willing to work at $W_0$ who cannot find jobs) 6. Over time, wages may slowly adjust, but in the short run, unemployment persistsQ7. What is the natural rate of unemployment? Why doesn’t it equal zero?
Answer
The natural rate is the unemployment that persists even when the economy is healthy — not in recession or boom. It doesn't equal zero because of: (1) **Frictional unemployment** — it takes time for workers to find jobs and for employers to find workers, even in a healthy economy; (2) **Structural unemployment** — some workers lack the skills employers demand; (3) **Government policies** that may discourage hiring or reduce work incentives. In the U.S., the natural rate is estimated at approximately 4.5–5.5%.Q8. An aerospace engineer loses their job because the space program is downsized. A recent college graduate hasn’t found their first job yet. Classify each type of unemployment.
Answer
The aerospace engineer experiences **structural unemployment** — their specialized skills are no longer in demand due to a permanent shift in the economy (space program cutback), not a temporary recession. The college graduate experiences **frictional unemployment** — they are transitioning into the labor market for the first time and need time to search, interview, and find a suitable match. This is a normal part of a dynamic economy.Q9. Explain how an unexpected productivity slowdown (like the 1970s) can raise the natural rate of unemployment.
Answer
When productivity growth suddenly slows, firms can no longer afford to pay wages that were set based on the expectation of continued productivity gains. But wages are sticky — they don't adjust downward quickly. Workers keep expecting (and receiving) wage increases at the old rate, even though productivity no longer justifies them. At the higher-than-warranted wage, quantity of labor supplied exceeds quantity demanded, pushing up unemployment. It takes years for wage expectations to adjust to the new, lower productivity growth rate.Q10. Why do many European countries have persistently higher unemployment than the U.S.?
Answer
The difference is primarily in the **natural rate**, not cyclical unemployment. European countries often have: (1) more generous and long-lasting welfare and unemployment benefits, reducing urgency to find work; (2) laws requiring months of advance notice before layoffs; (3) legally mandated severance packages (up to a year's salary); (4) strict regulations on hiring and firing. While these protect employed workers, they make firms **reluctant to hire** in the first place — raising the structural component of the natural rate.Q11. Explain three factors that have helped lower the U.S. natural rate of unemployment since the 1980s.
Answer
1. **Internet and social networking** — job boards and sites like LinkedIn make it far easier for job seekers and employers to find each other, reducing frictional unemployment 2. **Growth of the temp worker industry** — from 0.5% of workers in the 1980s to 2%+ in the 2000s; temp jobs serve as clearinghouses and stepping stones to permanent employment 3. **Aging of baby boomers** — as this large generation moved from young adulthood (high frictional unemployment) to middle age and retirement, the proportion of high-turnover young workers in the labor force declinedQ12. During the COVID-19 pandemic, the U.S. unemployment rate surged from 3.5% in February 2020 to 14.8% in April 2020. Was this primarily cyclical, frictional, or structural unemployment? Explain.
Answer
This was overwhelmingly **cyclical unemployment**. The pandemic caused a sudden, severe economic contraction — businesses shut down, consumer spending collapsed (especially in restaurants, tourism, and travel), and firms laid off millions of workers. It was not a skills mismatch (structural) or a normal job-transition process (frictional). The rapid recovery (unemployment fell well below 5% by 2022 as the economy reopened) confirms the cyclical nature. However, the pandemic also created some **structural** impacts — the shift to remote work and the decline in labor force participation (caregiving burdens, early retirements, health concerns) have persisted beyond the cyclical recovery.Q13. A country has 50 million employed, 5 million unemployed, and 25 million out of the labor force. A recession causes 3 million job losses: 2 million become unemployed and 1 million drop out of the labor force entirely. Calculate: (a) before/after unemployment rates, (b) the “true” rate including discouraged workers.
Answer
**(a) Before recession:** - LF = 55M; rate = $\frac{5}{55} \times 100 = 9.09\%$ **After recession (official):** - Employed: 47M; Unemployed: 7M; Out of LF: 26M; LF: 54M - Rate = $\frac{7}{54} \times 100 = \mathbf{12.96\%}$ **(b) "True" rate (counting 1M discouraged workers):** - Adjusted unemployed: 8M; Adjusted LF: 55M - True rate = $\frac{8}{55} \times 100 = \mathbf{14.55\%}$ The official rate understates true joblessness by 1.59 percentage points.Q14. Using the sticky-wage model: Labor supply is $W = 8 + 0.04L$ and labor demand shifts from $W = 60 - 0.06L$ to $W = 48 - 0.06L$. (a) Find original equilibrium. (b) Find unemployment gap with sticky wages. (c) How many extra jobs are lost due to wage stickiness compared to flexible wages?
Answer
**(a)** $8 + 0.04L = 60 - 0.06L \implies 0.1L = 52 \implies L_0 = 520, \; W_0 = \$28.80$ **(b) At sticky $W_0 = \$28.80$:** - $Q_s$: $28.80 = 8 + 0.04L \implies L_s = 520$ - $Q_d$: $28.80 = 48 - 0.06L \implies L_d = 320$ - **Unemployment gap = 200 workers** **(c) Flexible-wage equilibrium:** $8 + 0.04L = 48 - 0.06L \implies 0.1L = 40 \implies L_1 = 400$ Job losses with flexible wages: 520 − 400 = 120 Job losses with sticky wages: 520 − 320 = 200 **Extra jobs lost due to stickiness: 200 − 120 = 80 workers**Q15. France provides unemployment benefits of ~57% of salary for up to 24 months. The U.S. provides ~33% for 26 weeks. France’s natural rate is ~8.5% vs. U.S. ~4.5%. (a) Explain the 4-percentage-point gap using concepts from this chapter. (b) Germany’s Hartz reforms (2003–2005) cut benefit duration, and Germany’s natural rate fell from ~9.8% to ~3.1%. What does this suggest about the relationship between benefits and unemployment?
Answer
**(a)** France's longer and more generous benefits increase the **reservation wage** (minimum acceptable wage) and reduce the **urgency** of job search. Workers can remain unemployed longer while still meeting expenses, raising **frictional unemployment duration**. Additionally, France's strict hiring/firing regulations (months of notice, mandatory severance) make firms reluctant to hire, increasing **structural unemployment**. **(b)** Germany's dramatic decline demonstrates that benefit duration is a significant policy lever. The Hartz reforms shortened benefits, tightened eligibility, and required active job search — workers intensified search efforts earlier, significantly reducing average unemployment spells. The natural rate fell by nearly 7 points. However, the tradeoff is increased financial hardship and potentially worse job matching (workers accept suboptimal positions out of necessity).7. Glossary
| Term | Definition |
|---|---|
| Adverse Selection of Wage Cuts | If employers reduce wages across the board, the best workers (with the best alternatives) leave first |
| Cyclical Unemployment | Unemployment tied to the business cycle — rises in recessions, falls in expansions |
| Discouraged Workers | People who want work but have stopped looking and are no longer counted as unemployed |
| Efficiency Wage Theory | The theory that paying above-market wages increases worker productivity and reduces turnover |
| Frictional Unemployment | Unemployment that occurs naturally as workers transition between jobs |
| Full Employment | When the actual unemployment rate equals the natural rate; real GDP equals potential GDP |
| Hidden Unemployment | Underemployed, discouraged, and involuntary part-time workers not fully captured by the official rate |
| Implicit Contract | Unwritten understanding that employers won’t cut wages in bad times and employees won’t demand huge raises in good times |
| Insider-Outsider Model | Current employees (“insiders”) are protected because firms depend on their institutional knowledge |
| Labor Force Participation Rate | Percentage of adults either employed or actively seeking work |
| Natural Rate of Unemployment | The unemployment rate from economic, social, and political factors when the economy is neither booming nor in recession |
| Out of the Labor Force | Not working and not looking for work (retirees, students, stay-at-home parents, discouraged workers) |
| Relative Wage Coordination | Workers resist wage cuts because they can’t be sure others will also accept cuts |
| Structural Unemployment | Unemployment due to a mismatch between workers’ skills and employer demands |
| Underemployed | Workers employed in jobs below their skill or education level, or working part-time involuntarily |
| Unemployment Rate | Percentage of the labor force (not total population) that is without a job and actively seeking one |