More On Unemployment

by Elaine Schwartz    •    Oct 11, 2010    •    667 Views

These are great graphs! In just a minute or 2, through a series from The Washington Post, you can understand our employment problems.

Our starting point is potential output during the past decade. We see how much we could have produced if our land, labor, and capital had been optimally used. Then by comparing our potential to our actual output, the next three graphs illustrate when we reached our potential and when we were below it. During 2009, with the recession over, we see actual output rise. The problem though, is that the actual output line is still lower than our potential. The result? We have an “output gap”.

Eliminating the output gap with enough jobs is tough because increasingly efficient producers need fewer workers. In addition, our population keeps growing. So, the line representing actual output needs to ascend steeply toward potential output for enough workers to have jobs. As you can see in the last 2 graphs, 3% annual growth is not enough. What do we need?  You might want to look at graphs 8 and 9.

The Economic Lesson

There are four kinds of unemployment. 1) Cyclical unemployment that is caused by a dip in the business cycle. 2) Structural unemployment that results from fundamental changes in production such as new technology. 3) Seasonal unemployment that reflects the impact of holidays and the time of the year. 4) Frictional unemployment that will be here always because people are constantly leaving jobs for a variety of personal and professional reasons.

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