2.3 Unemployment
The unemployment rate is unemployed ÷ labor force × 100. Unemployment is frictional, structural, or cyclical — and only cyclical is zero at full employment.
The labor force is everyone employed plus everyone unemployed — jobless, available, AND actively searching. The unemployment rate = unemployed ÷ labor force × 100, and the labor force participation rate = labor force ÷ adult (working-age) population × 100. People not searching, like retirees, full-time students, and discouraged workers, are out of the labor force entirely.
There are three types: frictional (between jobs or newly searching), structural (skills no longer match available jobs, often from technology), and cyclical (caused by a downturn). The natural rate of unemployment is frictional plus structural — so full employment means cyclical unemployment is zero, NOT a 0% unemployment rate.
The official rate understates slack in two ways: discouraged workers who quit searching drop out of the labor force (which can make the rate FALL as conditions worsen), and part-timers who want full-time work count as fully employed.
Key terms for 2.3
Practice the math
Counting discouraged workers as unemployed. They stopped actively searching, so they leave the labor force — which is why the unemployment rate can fall even as the economy gets worse.
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