The unemployment rate is the bête noire* of economists, politicians, and the Bureau of Labor Statistics, among others. The unemployment rate is the percentage of the labor force without a job. There are some caveats to this definition: for instance, those with part-time and temporary jobs as well as those who perform at least 15 hours of unpaid labor for a family business are considered “employed.” The unemployment rate is taken as an indicator of economic health, with lower unemployment rates generally associated with better economic conditions. This guide will walk you through some of the ins and outs of the unemployment rate, but don’t quit your day job to become a full-time economist just yet!
By analyzing questions, you can see patterns emerge, patterns that will help you answer questions. Qwiz5 is all about those patterns. In each installment of Qwiz5, we take an answer line and look at its five most common clues. Here we explore five clues that will help you answer a tossup on Unemployment Rate.
BEVERIDGE CURVE
The Philips Curve and the Laffer Curve may be household names, but the Beveridge Curve deserves its due as well. Developed in the mid 20th century, the Beveridge Curve illustrates the relationship between the unemployment rate and the job vacancy rate. The curve slopes down and to the right. As the unemployment rate increases the job vacancy rate falls. A Beveridge Curve shifted to the right would mean greater market inefficiency, as there would be more unemployed people unable to fill increased job vacancies. Conversely, when the Beveridge Curve shifts to the left it indicates greater market efficiency.
OKUN’S LAW
Yale economist and Kennedy appointee Arthur Okun developed his eponymous law during the Keynesian heyday of the 1960s. Okun’s Law proposes that an increase in unemployment leads to a drop in Gross Domestic Product.
RELATIONSHIP TO THE PHILIP’S CURVE
The Philips Curve graphs the relationship between inflation and unemployment. According to the Philips Curve, unemployment and inflation are inversely related. Greater unemployment leads to reduced inflation, and vice versa. The short-run Philips Curve traces an L-shape when it is modeled with unemployment rate on the x-axis and inflation on the y-axis. This relationship was tested with the onset of stagflation in the 1970s.
FRICTIONAL UNEMPLOYMENT
Frictional unemployment is one form of naturally occurring unemployment. The frictional variant of unemployment describes workers who are in transitions between jobs. Some examples of workers undergoing frictional unemployment include those voluntarily leaving their jobs in hopes of finding a new job, and new workers entering the workforce. Frictional unemployment is a natural occurrence and less of a cause for concern than cyclical unemployment.
CYCLICAL UNEMPLOYMENT
A more worrisome form of unemployment than frictional is cyclical unemployment. Cyclical unemployment is driven by the cyclical nature of the economy. Thus, during an economic recession the unemployment rate tends to increase. During periods of economic expansion, the cyclical unemployment rate falls. This is also known as deficient-demand unemployment.
* A bête noire is something that you particularly dislike, like having people sneakily add extra
information in footnotes.
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Quizbowl is about learning, not rote memorization, so we encourage you to use this as a springboard for further reading rather than as an endpoint. Here are a few things to check out:
We discussed two variants of unemployment, but there are others as well. Check out this article that explains some of them.
Mass unemployment is an unfortunately recurring American phenomenon. Read about why in this article.
In addition to unemployment, Okun wrote on the tradeoff between efficiency and equality, a debate that is still ongoing today.
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