what is unemployment 
unemployment refers to a situation where a person actively searches for employment but is unable to find work unemployment is considered to be a key measure of the health of the economy the most frequently used measure of unemployment is the unemployment rate it s calculated by dividing the number of unemployed people by the number of people in the labor force understanding unemploymentunemployment is a key economic indicator because it signals the ability or inability of workers to obtain gainful work and contribute to the productive output of the economy more unemployed workers mean less total economic production the unemployment definition doesn t include people who leave the workforce for reasons such as retirement higher education and disability 1unemployed workers must maintain at least subsistence consumption during their period of unemployment this means that an economy with high unemployment has lower output without a proportional decline in the need for basic consumption high persistent unemployment can signal serious distress in an economy and even lead to social and political upheaval a low unemployment rate on the other hand means that the economy is more likely to be producing near its full capacity maximizing output driving wage growth and raising living standards over time however extremely low unemployment can also be a cautionary sign of an overheating economy inflationary pressures and tight conditions for businesses in need of additional workers while the definition of unemployment is clear economists divide unemployment into many different categories the two broadest categories are voluntary and involuntary unemployment when unemployment is voluntary it means that a person left their job willingly in search of other employment when it is involuntary it means that a person was fired or laid off and must now look for another job 2types of unemploymentvoluntary and involuntary unemployment can be broken down into four types we highlight them below this type of unemployment is usually short lived it is also the least problematic from an economic standpoint it occurs when people voluntarily change jobs after a person leaves a company it naturally takes time to find another job similarly graduates just starting to look for jobs to enter the workforce add to frictional unemployment frictional unemployment is a natural result of the fact that market processes take time and information can be costly searching for a new job recruiting new workers and matching the right workers to the right jobs all take time and effort this results in frictional unemployment cyclical unemployment is the variation in the number of unemployed workers over the course of economic upturns and downturns such as those related to changes in oil prices unemployment rises during recessionary periods and declines during periods of economic growth preventing and alleviating cyclical unemployment during recessions is one of the key reasons for the study of economics and the various policy tools that governments employ to stimulate the economy on the downside of business cycles structural unemployment comes about through a technological change in the structure of the economy in which labor markets operate technological changes can lead to unemployment among workers displaced from jobs that are no longer needed examples of such changes include the replacement of horse drawn transport with automobiles and the automation of manufacturing retraining these workers can be difficult costly and time consuming displaced workers often end up either unemployed for extended periods or leaving the labor force entirely institutional unemployment results from long term or permanent institutional factors and incentives in the economy the following can all contribute to institutional unemployment many governments offer unemployment insurance to certain unemployed individuals who meet eligibility requirements 