Unemployment is a measure of people without work who are actively looking for jobs
Unemployment describes the state of being out of work and actively searching for a job. It is not the same as straightforward not having a job — a person who is retired, in school full-time, or not looking for work is not counted as unemployed. The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment at a given time.
Governments and economists track unemployment because it signals the health of an economy. A rising unemployment rate often means the economy is slowing. A falling rate suggests more jobs are being created. Different countries measure unemployment slightly differently, but the core definition remains: people without work who are looking for it.
Key Takeaways
- Unemployment counts only people without jobs who are actively searching for work, not all people without jobs.
- The labor force includes employed people and unemployed people who are looking for work, but excludes students, retirees, and those not seeking employment.
- Unemployment rates vary by age, education level, race, and region, and these differences reveal which groups face the most difficulty finding work.
- Different types of unemployment — frictional, structural, cyclical, and seasonal — describe why people are out of work and how long they typically stay unemployed.
Who counts as unemployed and who does not
To be counted as unemployed, a person must meet two conditions: they must not have a job, and they must be actively looking for one. "Actively looking" means taking concrete steps within the past four weeks — submitting applications, attending interviews, contacting employers, or registering with a job placement service. straightforward wanting a job or checking job listings occasionally does not count.
People who are not counted as unemployed include retirees, full-time students not seeking work, people with disabilities who are not job-seeking, stay-at-home parents, and people who have stopped looking for work. This last group — called discouraged workers — is particularly important. Someone who was laid off, looked for work for months without success, and then gave up is no longer counted as unemployed, even though they want a job. This means the official unemployment rate can understate the true number of people without work.
The labor force and how unemployment rates are calculated
The labor force is the total number of people who are either employed or actively unemployed. It does not include the entire population — it excludes children, retirees, students, people with disabilities not seeking work, and anyone else not in the job market. The unemployment rate is calculated by dividing the number of unemployed people by the total labor force and multiplying by 100.
For example, if a labor force has 100,000 people and 5,000 are unemployed, the unemployment rate is 5 percent. When the labor force shrinks because people stop looking for work, the unemployment rate can fall even if no new jobs were created. This is why economists also track labor force participation — the percentage of the working-age population that is in the labor force — to get a fuller picture of employment.
Types of unemployment and what causes them
Frictional unemployment is the time it takes someone to find a new job after leaving one. A person who quits to move to a new city or leaves a job to find better pay will be unemployed for a few weeks or months while searching. This type of unemployment is considered normal and unavoidable in any economy.
Structural unemployment occurs when the skills workers have do not match the jobs available. A factory worker whose plant closes may find that new jobs in the area require different skills. Retraining or relocation may be necessary. This type of unemployment can last longer than frictional unemployment and is harder to solve quickly.
Cyclical unemployment rises and falls with the economy. During a recession, businesses lay off workers and hiring slows, pushing unemployment up. As the economy recovers and grows, businesses rehire and unemployment falls. This type is tied directly to economic cycles.
Seasonal unemployment happens in industries where work is not year-round — agriculture, construction, retail, and tourism are common examples. Workers in these fields expect to be unemployed during slow seasons. Seasonal unemployment is predictable and temporary.
Unemployment rates vary by group and location
Unemployment is not evenly distributed across the population. Rates differ by age, education level, race, ethnicity, and geographic region. Young workers typically have higher unemployment rates than older workers because they change jobs more often and take longer to find their first position. People without a high school diploma have higher unemployment rates than college graduates.
Racial and ethnic unemployment rates also differ, reflecting both historical barriers and current economic conditions. Some regions experience higher unemployment than others because local industries are declining or because the population has fewer job opportunities. Understanding these differences helps policymakers and economists see which groups and areas need the most support.
The difference between unemployment and underemployment
Underemployment is different from unemployment. An underemployed person has a job but is working fewer hours than they want, or is working in a job that does not use their skills or education. A college graduate working part-time at a retail store is underemployed, not unemployed. Someone working full-time but earning far less than they did before is also underemployed.
Underemployment is not included in the official unemployment rate, but it is tracked separately because it also signals economic hardship. During recessions, underemployment often rises along with unemployment. A person can move from unemployed to underemployed if they take a part-time job while still looking for full-time work.
How unemployment data is collected and reported
In the United States, the Bureau of Labor Statistics conducts a monthly survey called the Current Population Survey to measure unemployment. Researchers contact about 60,000 households and ask about employment status. Other countries use similar surveys. The data is released monthly and broken down by age, education, race, gender, and industry.
Unemployment figures are also reported by state and local area. Some states and cities publish their own data more frequently or with more detail. These reports are used by policymakers to decide on economic policy, by businesses to plan hiring, and by workers to understand job market conditions in their area.
Frequently Asked Questions
Is someone unemployed if they are collecting unemployment benefits?
Not necessarily. To collect unemployment benefits, a person must meet their state's requirements, which usually include being unemployed through no fault of their own and actively looking for work. However, someone can be unemployed without collecting benefits if they do not meet the requirements or have exhausted their benefits. Conversely, someone receiving benefits must continue to meet the definition of unemployed to keep receiving them.
What is the difference between unemployment rate and unemployment level?
The unemployment rate is a percentage — the share of the labor force that is unemployed. The unemployment level is the actual number of unemployed people. If a country has 10 million unemployed people out of a labor force of 160 million, the unemployment level is 10 million and the unemployment rate is 6.25 percent. Both numbers are reported monthly.
Can someone be unemployed and not looking for work?
No, not according to the official definition. To be counted as unemployed, a person must be actively looking for work. Someone who is not looking is not counted as unemployed, even if they do not have a job. This is why the labor force participation rate is important — it shows how many people have stopped looking.
Does unemployment include self-employed people?
Self-employed people are not counted as unemployed because they are considered employed, even if their business is struggling or earning very little. However, if a self-employed person closes their business and begins looking for a job, they would then be counted as unemployed once they start actively searching.