Concepts of Unemployment

In modern economics, we think of the population as having three components: those who are employed, those who are unemployed, and the rest, who neither are working nor are seeking work. The first two groups -- those who are employed and who are seeking work -- together comprise the labor force:

DEFINITION:

the labor force

The labor force consists of all those persons who are willing to work at a market equilibrium wage, and who either have jobs or are seeking work.

To measure the importance of unemployment in a nation's work force, we use the unemployment rate:

DEFINITION:

unemployment rate

The unemployment rate is a ratio, obtained by dividing the number of unemployed persons by the number of persons in the labor force.

Thus, the rate of unemployment is a fraction, less than one. It is usually expressed as a percent. If you consult some standard source of economic statistics, such as the Wall Street Journal, Survey of Current Business, or Business Conditions Digest, you will probably find the current rate of unemployment reported as something between 4% and 10%. In the nineties, the unemployment rate in the United States has usually been between 5% and 6%.

Biases in Measuring Unemployment