The U.S. Census Bureau conducts monthly surveys to determine the status of the labor force in the U.S.

To be counted as unemployed, a person must be actively seeking employment but currently without work.

The unemployment rate is the percentage of persons in the labor force who are unemployed. This is a key parameter of conditions in the aggregate labor market.

There are special categories of unemployment, such as:

• Long-term unemployed: people who are unemployed because they do not have the skills required by the openings or reside far from the jobs.
• Frictionally unemployed: people who are not working because they are in between jobs.

Unemployment rate tends to be a lagging instead of a leading indicator of the economy, confirming but not foreshadowing long-term market trends. It tends to peak after the trough of the business cycle and bottom after the peak of the business cycle. This is because:

• The employment data is compiled afterwards.
• Employers are reluctant to lay people off when the economy turns bad. For large companies, it can take months to put together a layoff plan. Companies are even more reluctant to hire new workers until they are sure the economy is well into the expansion phase of the business cycle.

Underemployed is a measure of employment and labor utilization in the economy. It looks at how well the labor force is being utilized in terms of skills, experience, and availability to work.

Discouraged workers believe that continuing the job search is fruitless and thus give up looking for a job. They wish to work but because they are not actively searching for work they are excluded from the labor force and are not counted in the unemployment rate. The unemployment rate may fall during recessions as discouraged workers leave the labor force.

Voluntary unemployment refers to the number of persons in an economy without jobs because they choose to be unemployed.

Analysts also use other measures to get a better picture of the employment cycle. These measures include the size of payrolls, hours worked, and the use of temporary workers.

Practice Question 1

If the labor force is 100 million and the number of people who are looking for jobs but cannot find them is 6 million, the unemployment rate is ______.

A. 6%
B. 16.7 million
C. 16.7%

Correct Answer: A

To calculate the unemployment rate, divide the number of people who are unemployed (6) by the labor force (100) and multiple by 100. This equals 6/100*100 = 6%.

Practice Question 2

Suppose in the nation of Utopia there are 2,000 people over 16 years old. Out of these 2,000 people, 1,500 are employed, 100 are unemployed and looking for work, and 400 are unemployed and are not looking for work. The unemployment rate in Utopia is ______.

Correct Answer: 6.25%

The labor force is composed of the employed (1,500) and the unemployed but looking for work (100). The unemployment rate is 100/1,600 = 0.0625 or 6.25%.

Practice Question 3

Which statement about the unemployment rate is true?

I. If the unemployment rate is rising, it indicates that the economy has been doing poorly.
II. The unemployment rate can continue to rise even after the economy has started to recover.

Correct Answer: Both statements are true.

The unemployment rate is a lagging indicator. It is a powerful confirmation of what the other indicators are already showing.

Practice Question 4

Workers who are highly skilled but working in low-paying jobs are ______.

A. underemployed
B. discouraged
C. voluntarily unemployed

Correct Answer: A

They are working but not at their full capability.

Practice Question 5

Which scenario could improve the unemployment rate?

I. An improved economy
II. An increase in discouraged workers
III. An increase in underemployed workers

Correct Answer: I, II and III

Practice Question 6

To be counted as unemployed, a person must be available for work and in any one of the following categories except ______

A. waiting to be called back to a job from which he or she has been laid off.
B. without work but has made specific efforts to find a job within the previous four weeks.
C. currently in some form of institutional care.
D. waiting to start a new job within 30 days.

Correct Answer: C

Practice Question 7

Hidden unemployment includes ______.

I. discouraged workers
II. underemployed workers
III. working-age full-time students

Correct Answer: I, II and III

Only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Hidden, or covered, unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics (due to the way the statistics are collected).

Practice Question 8

An individual who is working part-time at an office job instead of full-time is considered to be ______.

A. underemployed
B. discouraged
C. voluntarily unemployed

Correct Answer: A

An underemployed person works full-time at a job for which he or she is overqualified, or at a part-time job for which he or she is qualified. In this case, the individual is willing to provide more employment, which can increase the overall output.

Practice Question 9

Suppose that you have a college degree but the only work that you can find is driving a taxicab. What is this called?

A. Frictional unemployment
B. Structural unemployment
C. Cyclical unemployment
D. Underemployment
E. A discouraged worker

Correct Answer: D

A part-time worker who wants to work full-time or a worker who is working at a level below his or her skill level is called underemployed.

Practice Question 10

Suppose there are 2,500 people in the nation of Utopia. Of the people over 16 years old, 1,800 are employed, 200 are unemployed and looking for work, and 200 are unemployed and are not looking for work. The unemployment rate in Utopia is ______.

A. 10%
B. 11.11%
C. 16%

Correct Answer: A

The people not in the work force (the 200 unemployed who are not looking for a job) are not accounted for as being unemployed. They are discouraged workers who have left the workforce. The unemployment rate is 200/2000 = 0.1 or 10%.

Practice Question 11

A worker who rejects a position while looking for one with better pay or benefits is considered to be ______.

A. underemployed
B. discouraged
C. voluntarily unemployed

Correct Answer: C

Most frictional unemployment (unemployment when one is between jobs) is considered voluntary because one is looking for work rather than taking any job one finds.

Practice Question 12

An individual with an engineering degree working as a pizza delivery man as his main source of income is considered to be ______.

A. underemployed
B. discouraged
C. voluntarily unemployed

Correct Answer: A

In theory, he can provide a greater benefit to the overall economy if he is working as an engineer.

Practice Question 13

The civilian population (age 16 and over) of country A is 100 million; 5 million are unemployed and 55 million hold jobs. What is the rate of unemployment of this country?

A. 8.33%
B. 9.09%
C. 5%

Correct Answer: A

The unemployment rate is: 5 million/(5 million + 55 million) = 8.33%.

Practice Question 14

The unemployment rate is likely to understate the rate of actual unemployment because ______

I. different ethnic groups have different unemployment rates.
II. some people choose to remain unemployed.
III. discouraged workers are not officially counted as unemployed.
IV. students are not officially counted as unemployed.

A. II and IV
B. III and IV
C. III only

Correct Answer: C

Discouraged workers, who would like to have jobs but have stopped actively looking, are not counted as unemployed, and thus the rate of unemployment may be understated (there are other reasons, such as underemployment, as well).

Practice Question 15

Discouraged workers are ______

A. discouraged because their current employment compensations are low; they believe deserve higher wages or salaries.
B. workers whose productivities are lower than average workers.
C. not working, and not even officially unemployed.

Correct Answer: C

Discouraged workers give up looking for work since they believe that additional job searches would be useless. They are therefore no longer counted as unemployed. This is one of unemployment's measurement problems.

Practice Question 16

If John quits his job to find a new job in a different city, he is considered ______.

A. frictionally unemployed
B. structurally unemployed
C. naturally unemployed

Correct Answer: A

This is an example of frictional unemployment, the portion of unemployment attributable to the normal workings of the economy. It differs from structural and cyclical unemployment.

Practice Question 17

Which of the following is the best example of frictional unemployment?

A. You voluntarily quit your job and you're looking for a new one.
B. Typewriters have largely been replaced by computers, so the typewriter industry permanently lays off workers. These workers do not have the skills to get a job in the computer industry.
C. You are employed part-time at a grocery store but you would prefer to work full-time.

Correct Answer: A

Frictional unemployment refers to temporary unemployment due to the time that it takes to search for an appropriate job.

Practice Question 18

Which of the following types of unemployment is most likely to be associated with an economy in which many workers have been made obsolete by changing technology?

A. Cyclical
B. Structural
C. Frictional

Correct Answer: B

Structural unemployment arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.