CIVILIAN UNEMPLOYMENT

What is Civilian Unemployment?

To define an individual who is unemployed, they are part of the labor market, yet are out of work and actively seeking to find one. A key word to mention is: "active". Discouraged workers — people who have given up on looking for a job— are considered to be "out of the labor force". This also includes children, retirees, and the sick. An average level of unemployment deemed to be healthy is 4-6%. This known as the natural rate of unemployment. This includes frictional (which occurs when workers spend time looking for a job that best meets their skills/abilities and inclinations); structural (which is when a worker's skills are no longer necessary for use and are often replaced); and seasonal (which is when their place of work is closed for a particular season or given times). Just as Actual GDP fluctuates above and below its potential, so is another component of unemployment, known as Cyclical Unemployment, which changes by mirroring business cycles.

What do we see on the graph?

The rate of unemployment and GDP always move in opposite directions from each other. Periods of expansion where GDP is increasing, unemployment falls due to more job opportunities. And on the contrary, in times of recessions, unemployment rises.

Notice that the rise in unemployment occurs even before the term of recession actually begins. Wondering why that is? The level of unemployment is often the best indicator of when an economy may end up at its highest of lowest peaks. When there is a rapid decrease in unemployment, the economy will soon enough be booming. And when unemployment shoots up, the economy is on its way to crash.