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How Does Unemployment Work?

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Unemployment vs. Discouraged Workers

Unemployment occurs when a worker wishes to be employed and is actively seeking employment, yet does not have a job. Most often, unemployment is a result of losing a job, or being laid off. However, it can also affect people that did not have a job, but are attempting to enter the job market. People without jobs and who are not looking for jobs are not considered unemployed, but rather as disaffected or discouraged workers. Therefore, they are not part of the work force.

Types of Unemployment

In economics, there are several different theories and explanations for why unemployment occurs. Structural unemployment is unemployment that occurs as a result of a worker entering a field that he is not well suited for. For example, if a mathematician tried to become an actor, he might fight himself out of work and forced back into pursuing math. Frictional unemployment is unemployment that occurs as a result of imperfect information about jobs and changes in preferences--essentially people voluntarily becoming unemployed to seek new lines of work. Cyclical unemployment is job loss that occurs when there is not enough demand for work in the economy, such as what is experienced during a recession. It is primarily cyclical unemployment that causes the economy-wide unemployment rate to rise and fall.

Federal Unemployment Benefits

In the United States, when someone has a job but is laid off, there are certain unemployment benefits granted to allow the person to make ends meet until he is able to secure his next source of dependable income. The money he receives is paid from a pool of insurance premiums paid by employers, and is calculated as a proportion of the money he received while he was employed. People who made more money will be paid more in unemployment insurance. Along with monetary compensation, programs are in place to extend benefits, especially health coverage. Benefits and payments are normally granted for up to 26 weeks and can be extended past that during recessionary periods. When someone becomes employed again, his unemployment benefits cease.


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