What Unemployment Is and What It Is Not
According to the Census Bureau, the 2008 U.S. population was approximately 300 million, of which 145 million were employed. How many were unemployed? It might come as a surprise to you that the answer to that question cannot be determined from the information given. True, you can infer that 155 million did not work, but that does not necessarily mean that they were all unemployed. Are toddlers and kindergarteners unemployed? Of course they are not. To determine the number of unemployed, you must first define the term unemployment.
Persons sixteen years of age or older are considered unemployed if they have actively searched for work in the last four weeks but are not currently employed. The employed are those who have worked at least one hour in the previous two weeks. People who meet neither criterion are not considered in the labor force, which is the number of employed persons plus the number of unemployed persons. The unemployment rate that you hear quoted in the news is not a percentage of the population, but a percentage of the labor force that is not currently employed.
Does an increase in the unemployment rate mean that fewer people are employed?
Not necessarily. It is possible for the unemployment rate to increase at the same time the number of employed is increasing. A demographic shift in the labor force like the entrance of women during World War II or the return to civilian life of members of the military can create a condition where the ratio of unemployed to the labor force increases even while employment is increasing.
There are many reasons for not participating in the labor force. Full-time students, retirees, stay-at-home parents, the disabled, and the institutionalized do not participate. Members of the military on active duty are not considered part of the labor force either. At any point in time there are people entering, exiting, and re-entering the labor force. Furthermore, people are forever getting hired, fired, and furloughed. They are also quitting, cutting back, and retiring. The labor force is in constant flux, which makes measuring unemployment a daunting task.