History shows that two problems that arise from the business cycle are unemployment and inflation. To measure the unemployment rate, the government needs to first determine who is eligible to work. The labor force is made up of three groups, those who are under 16 years of age and people who are institutionalized. The second group consists of those adults who are potential workers but are not employed and are not seeking work. (I refer to them as bums). And the third group which are those who are willing and able to work and are working. In 2002 that third group was made up of about fifty percent of the population.
The measure of unemployment is the number of unemployed divided by the labor force multiplied by 100. This formula is the mathematical equation used to measure the rate of unemployment. The are also three types of unemployment. Frictional, Structural and Cyclical Unemployment.
Frictional unemployment is when a person is in between jobs. This could be due to the individual voluntarily moving between jobs, and others may have been fired or laid off temporarily due to the company downsizing. Structural unemployment is the term used by economists when unemployment becomes an issue due to consumer demand and technology. As we advance in the age of new technology, people are being replaced by machines which are able to produce more than the average person in the same amount time. Or in cases where jobs are relocated to foreign soil simply due to the costs of labor. Cyclical unemployment is caused by a decline in total spending and is likely to occur in the recession phase of the business cycle. As the demand for goods and services decreases, so does the need for full staffing and thus creating unemployment.