Learning Objectives

• Explain historical patterns of unemployment in the United States
• Identify trends of unemployment based on demographics
• Evaluate global unemployment rates

The Historical U.S. Unemployment Rate

Figure 7.3 shows the historical pattern of U.S. unemployment since 1955.

Figure 7.3 The U.S. Unemployment Rate, 1955–2015 The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of four to six percent. There does not seem to be a long-term trend toward the rate moving generally higher or lower (Federal Reserve Bank of St. Louis, 2013d).

As we look at this data, several patterns stand out.

• Unemployment rates do fluctuate over time. During the deep recessions of the early 1980s and of 2007–2009, unemployment reached roughly 10 percent. For comparison, during the Great Depression of the 1930s, the unemployment rate reached almost 25 percent of the labor force.
• Unemployment rates in the late 1990s and into the mid-2000s were rather low by historical standards. The unemployment rate was below five percent from 1997 to 2000 and near five percent during 2006–2007. The previous time unemployment had been less than five percent for three consecutive years was three decades earlier, from 1968 to 1970.
• The unemployment rate never falls all the way to zero. Indeed, it never seems to get below three percent—and it stays that low only for very short periods. Reasons as to why this is the case are discussed later in this chapter.
• The timing of rises and falls in unemployment matches fairly well with the timing of upswings and downswings in the overall economy. During periods of recession and depression, unemployment is high. During periods of economic growth, unemployment tends to be low.
• No significant upward or downward trend in unemployment rates is apparent. This point is especially worth noting because the U.S. population nearly quadrupled from 76 million in 1900 to more than 314 million by 2012. Moreover, a higher proportion of U.S. adults are now in the paid workforce because women have entered the paid labor force in significant numbers in recent decades. Women composed 18 percent of the paid workforce in 1900 and nearly half of the paid workforce in 2012. But despite the increased number of workers, as well as other economic events like globalization and the continuous invention of new technologies, the economy has provided jobs without causing any long-term upward or downward trend in unemployment rates.

Unemployment Rates by Group

Unemployment is not distributed evenly across the U.S. population. Figure 7.4 shows unemployment rates broken down by gender, age, and race and ethnicity.

Figure 7.4 Unemployment Rate by Demographic Group (a) By gender, 1972–2014. Unemployment raftes for men used to be lower than those for women, but in recent decades, the two rates have been very close, often with the unemployment rate for men somewhat higher. (b) By age, 1972–2014. Unemployment rates are highest for the very young and decrease with age. (c) By race and ethnicity, 1972–2014. Although unemployment rates for all groups tend to rise and fall together, the unemployment rate for whites has been lower than for blacks and Hispanics in recent decades (Bureau of Labor Statistics).

The unemployment rate for women historically was higher than men, perhaps reflecting the historical pattern that women were seen as secondary earners. By about 1980, however, the unemployment rate for both women and men was essentially the same, as shown in Figure 7.4 (a). During the recession of 2008-2009, the unemployment rate for men exceeded the unemployment rate for women. Through 2014, this pattern has remained, although the gap is narrowing.

Link It Up

Read this report for detailed information on the recession of 2008–2009. It also provides some very useful information on the statistics of unemployment.

Younger workers tend to have higher unemployment, while middle-aged workers tend to have lower unemployment, probably because the middle-aged workers feel the responsibility of needing to have a job more heavily. Younger workers move in and out of jobs and the labor force more easily. Elderly workers have extremely low rates of unemployment because those who do not have jobs often exit the labor force by retiring, and thus are not counted in the unemployment statistics. Figure 7.4 (b) shows unemployment rates for women divided by age; the pattern for men is similar.

The unemployment rate for African-Americans is substantially higher than for other racial or ethnic groups, a fact that surely reflects, to some extent, a pattern of discrimination that has constrained blacks’ labor market opportunities. However, the gaps between unemployment rates for whites, and for blacks and Hispanics, diminished in the 1990s, as shown in Figure 7.4 (c). In fact, unemployment rates for blacks and Hispanics were at the lowest levels for several decades in the mid-2000s before rising during the recent Great Recession.

Finally, those with less education typically suffer higher unemployment. In February 2015, the unemployment rate for those with a college degree was 2.7 percent; for those with some college but not a four-year degree, the unemployment rate was 5.1 percent; for high school graduates with no additional degree, the unemployment rate was 5.4 percent; and for those without a high school diploma, the unemployment rate was 8.4 percent. This pattern may arise because additional education offers better connections to the labor market and higher demand, or it may occur because the labor market opportunities for low-skilled workers are less attractive than the opportunities for the more highly-skilled. Because of lower pay, low-skilled workers may be less motivated to find jobs.

Breaking Down Unemployment in Other Ways

The BLS also gives information about the reasons for being unemployed, as well as the length of time individuals have been unemployed. Table 7.2, for example, shows the five reasons for being unemployed and the percentages of the currently unemployed that fall into each category. Table 7.3 shows the length of unemployment. The data for both is from February of 2015.

Link It Up

Watch this speech on the impact of droids on the labor market.

International Unemployment Comparisons

From an international perspective, the U.S. unemployment rate typically has looked better than average. Table 7.4 compares unemployment rates for 1991, 1996, 2001, 2006 (just before the recession), and 2012 (somewhat after the recession) from several high-income countries.

However, cross-country comparisons of unemployment rates need to be treated with care because each country has slightly different survey tools for measuring unemployment and different labor markets. For example, Japan’s unemployment rates appear quite low, but its economy has been mired in slow growth and recession since the late 1980s. Japan’s unemployment rate probably paints too rosy a picture of its labor market. In Japan, Workers there who lose their jobs are often quick to exit the labor force and not look for a new job, in which case they are not counted as unemployed. In addition, Japanese firms are often reluctant to fire workers, so firms have substantial numbers of workers who are on reduced hours or officially employed, but doing very little. This country's pattern is perhaps best viewed as an unusual method for society to provide support for the unemployed, rather than a healthy economy.

Link It Up

We hear about the Chinese economy in the news all the time. The value of the Chinese yuan in comparison to the U.S. dollar is likely to be part of the nightly business report. So why is the Chinese economy not included in this discussion of international unemployment? The lack of reliable statistics is probably the reason. This article explains why.

Comparing unemployment rates in the United States and other high-income economies with those in Latin America, Africa, Eastern Europe, and Asia is very difficult. One reason is that the statistical agencies in many poorer countries lack the resources and technical capabilities of the BOC. But a more difficult problem with international comparisons is that in many low-income countries, most workers are not involved in the labor market through an employer who pays them regularly. Instead, workers in these countries are engaged in short-term work, subsistence activities, and bartering. Moreover, the effect of unemployment is very different in high-income and low-income countries. Unemployed workers in the developed economies have access to various government programs like unemployment insurance, welfare, and food stamps; such programs may barely exist in poorer countries. Although unemployment is a serious problem in many low-income countries, it manifests itself in a different way than in high-income ones.