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Chapter 21. Unemployment

21.2 Patterns of Unemployment

Learning Objectives

By the end of this section, you will be able to:
  • Explain historical patterns of unemployment in the U.S.
  • Identify trends of unemployment based on demographics
  • Evaluate global unemployment rates

Let’s look at how unemployment rates have changed over time and how various groups of people are affected by unemployment differently.

The Historical U.S. Unemployment Rate

Figure 1 shows the historical pattern of U.S. unemployment since 1955.

The line graph reveals that, over the past 60-plus years, unemployment rates have continued to fluctuate with the highest rates of unemployment occurring around 1982 and 2010.

Figure 1. 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 4% to 6%. There does not seem to be a long-term trend toward the rate moving generally higher or generally lower. (Source: Federal Reserve Economic Data (FRED) https://research.stlouisfed.org/fred2/series/LRUN64TTUSA156S0

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

  1. Unemployment rates do fluctuate over time. During the deep recessions of the early 1980s and of 2007–2009, unemployment reached roughly 10%. For comparison, during the Great Depression of the 1930s, the unemployment rate reached almost 25% of the labor force.
  2. Unemployment rates in the late 1990s and into the mid-2000s were rather low by historical standards. The unemployment rate was below 5% from 1997 to 2000 and near 5% during almost all of 2006–2007. The previous time unemployment had been less than 5% for three consecutive years was three decades earlier, from 1968 to 1970.
  3. The unemployment rate never falls all the way to zero. Indeed, it never seems to get below 3%—and it stays that low only for very short periods. (Reasons why this is the case are discussed later in this chapter.)
  4. 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 lower.
  5. 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 over 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% 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 2 shows unemployment rates broken down in various ways: by gender, age, and race/ethnicity.

Graph a shows the trends in unemployment rates by gender for the year 1972 to 2014. In 1972 the graph starts out at 6.6% for females. It jumps to 9.3% in 1975 for females, gradually goes back down until 2009, when it rises to 8.1%. It gradually lowers to 6.1% in 2014 for females. For males, it starts out at around 5% in 1972, goes up and down periodically, and ends at 6.3% in 2014. Graph b shows the trends in unemployment rates for women, by age for the year 1972 to 2014. In 1972, the graph starts out around 9% for women aged 20–24, goes up to 13.6% in 1975, and ends at 11.2% in 2014. In 1972, the graph starts out at 3.7% for women aged 25–54, jumps to 6.4% in 1975, and ends at around 5% in 2014. In 1972, the graph starts out around 3% for women aged 55 and over. It remains between 3–5% until 2010, when it jumps to 7%. In 2014, it drops down to 4.4%. Graph c shows the trends in unemployment rates by race and ethnicity for the year 1972 to 2014. In 1972, the graph starts out at 10.4% for blacks, rises to nearly 15% in 1975, rises even more in 1983 to 19.5%, and ends up around 11% in 2014. In 1972, the graph starts out around 7% for Hispanics, rises to around 12% in 1975, and ends at 7.4% in 2014. In 1972, the graph starts out around 5% for whites, jumps to nearly 8% in 1975, jumps again to nearly 8.5% in 1982, and ends up at around 5% in 2014.

Figure 2. Unemployment Rate by Demographic Group. (a) By gender, 1972–2014. Unemployment rates for men used to be lower than unemployment rates 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 become lower 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 the unemployment rate for blacks and Hispanics in recent decades. (Source: www.bls.gov)

The unemployment rate for women had historically tended to be higher than the unemployment rate for men, perhaps reflecting the historical pattern that women were seen as “secondary” earners. By about 1980, however, the unemployment rate for women was essentially the same as that for men, as shown in Figure 2 (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.

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

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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 in and out of 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 2 (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 the rate 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 2 (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, for example, the unemployment rate for those with a college degree was 2.7%; for those with some college but not a four year degree, the unemployment rate was 5.1%; for high school graduates with no additional degree, the unemployment rate was 5.4%; and for those without a high school diploma, the unemployment rate was 8.4%. 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 Bureau of Labor Statistics also gives information about the reasons for being unemployed as well as the length of time individuals have been unemployed. Table 2, for example, shows the four reasons for being unemployed and the percentages of the currently unemployed that fall into each category. Table 3 shows the length of unemployment. For both of these, the data is from February of 2015. (bls.gov)

Reason Percentage
New Entrants 11.2%
Re-entrants 30.5%
Job Leavers 10.2%
Job Losers: Temporary 11.7%
Job Losers: Non Temporary 36.3%
Table 2. Reasons for Being Unemployed, February 2015
Length of Time Percentage
Under 5 weeks 27.9%
5 to 14 weeks 25.6%
15 to 26 weeks 15.4%
Over 27 weeks 31.1%
Table 3. Length of Unemployment, February 2015

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

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International Unemployment Comparisons

From an international perspective, the U.S. unemployment rate typically has looked a little better than average. Table 4 compares unemployment rates for 1991, 1996, 2001, 2006 (just before the recession), and 2012 (somewhat after the recession) from several other high-income countries.

Country 1991 1996 2001 2006 2012
United States 6.8% 5.4% 4.8% 4.4% 8.1%
Canada 9.8% 8.8% 6.4% 6.2% 6.3%
Japan 2.1% 3.4% 5.1% 4.5% 3.9%
France 9.5% 12.5% 8.7% 10.1% 10.0%
Germany 5.6% 9.0% 8.9% 9.8% 5.5%
Italy 6.9% 11.7% 9.6% 7.8% 10.8%
Sweden 3.1% 9.9% 5.0% 5.2% 7.9%
United Kingdom 8.8% 8.1% 5.1% 5.5% 8.0%
Table 4. International Comparisons of Unemployment Rates

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 also different labor markets. For example, Japan’s unemployment rates appear quite low, but Japan’s economy has been mired in slow growth and recession since the late 1980s, and Japan’s unemployment rate probably paints too rosy a picture of its labor market. In Japan, workers 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 quite reluctant to fire workers, and so firms have substantial numbers of workers who are on reduced hours or officially employed, but doing very little. This Japanese pattern is perhaps best viewed as an unusual method for society to provide support for the unemployed, rather than a sign of a healthy economy.

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.

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Comparing unemployment rates in the United States and other high-income economies with unemployment rates 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 U.S. Bureau of the Census. 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 barter. 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 countries.

Key Concepts and Summary

The U.S. unemployment rate rises during periods of recession and depression, but falls back to the range of 4% to 6% when the economy is strong. The unemployment rate never falls to zero. Despite enormous growth in the size of the U.S. population and labor force in the twentieth century, along with other major trends like globalization and new technology, the unemployment rate shows no long-term rising trend.

Unemployment rates differ by group: higher for African-Americans and Hispanics than for whites; higher for less educated than more educated; higher for the young than the middle-aged. Women’s unemployment rates used to be higher than men’s, but in recent years men’s and women’s unemployment rates have been very similar. In recent years, unemployment rates in the United States have compared favorably with unemployment rates in most other high-income economies.

Self-Check Questions

  1. Over the long term, has the U.S. unemployment rate generally trended up, trended down, or remained at basically the same level?
  2. Whose unemployment rates are commonly higher in the U.S. economy:
    1. Whites or nonwhites?
    2. The young or the middle-aged?
    3. College graduates or high school graduates?

Review Questions

  1. Are U.S. unemployment rates typically higher, lower, or about the same as unemployment rates in other high-income countries?
  2. Are U.S. unemployment rates distributed evenly across the population?

Critical Thinking Questions

  1. Is the higher unemployment rates for minority workers necessarily an indication of discrimination? What could be some other reasons for the higher unemployment rate?
  2. While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
  3. Why do you think that unemployment rates are lower for individuals with more education?


Answers to Self-Check Questions

  1. Over the long term, the U.S. unemployment rate has remained basically the same level.
    1. Nonwhites
    2. The young
    3. High school graduates


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21.2 Patterns of Unemployment by Rice University is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.