Jobs & Unemployment
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- I need a dollar, dollar, a dollar is what I need
One of the initial misconceptions that non-economists have is that the unemployment rate should be zero. We won’t reach zero unemployment even when an economy is growing rapidly -- the structural and frictional changes required to find new jobs are significant. Economists distinguish three types of unemployment (structural, frictional, and cyclical) in an effort to pin down the root causes of unemployment.
Real World Examples
Steel helped to revolutionize life in the late 19th and early 20th century. While steel has been around for centuries, the number of workers needed to manufacture it has steadily dwindled. As recently as 1980, almost 500,000 people were employed making steel. That number fell to about 150,000 workers in 2010. Where have all the jobs gone? Steel production has become much more efficient and advanced engineering has made it possible for firms to replace workers with automated equipment. These changes mean that steel manufacturing is now safer, but fewer workers are needed than before. That trade off is evidence of how people become unemployed because of structural changes in the economy.
What is the True Unemployment Rate?
Though not widely reported, the Bureau of Labor Statistics computes several alternative measures of joblessness. There are two ways in which the official unemployment rate fails to capture the true extent of labor underutilization. If we add back in all of the discouraged and underemployed workers we find that unemployment is actually far worse than the official unemployment rate. Depending on which measure you prefer, unemployment in 2010 was either, 10% (the official number), 17% (including those looking for full time work but employed part-time), or 22% (considering that long-term discouraged workers should be considered unemployed). We must recognize that the official unemployment rate is not designed to measure the full extent of labor utilization in this country.