Unemployment refers to a period of time when a person is not working but is able to hold a job and is actively seeking employment.
There are several reasons for unemployment, such as:
-
entry into the labour market
-
a return to work after a break
-
a termination of employment
-
a desire to change jobs
Other elements can influence unemployment, such as:
-
technical advances
-
demographic change
-
changes in the labour market
-
changes to required job qualifications
-
Working life means the time in a person’s life when he or she is on the job market and part of the labour force.
-
The active population is the number of people of working age (15 to 64) available to join the labour market, whether working or not.
-
Termination of employment means an employer fires an employee for a number of possible reasons.
From an economic standpoint, unemployment is an inequality of supply versus demand in the labour market. Unemployment varies from country to country, mainly depending on each country’s economic situation and its types of production.
When there are plenty of jobs offered by companies and few people looking for work, the unemployment rate decreases because there are enough jobs to employ all the people looking for work. Salaries increase as companies seek to attract new employees to fill their labour needs.
Conversely, when there aren’t many jobs to offer, but many people are looking for work, the unemployment rate increases because there are not enough jobs for everyone. As a result, salaries decrease as companies find it easier to fill vacancies.
A population’s unemployment is determined by the unemployment rate.
The unemployment rate is the percentage of the population that is not working but is actively seeking work.
The unemployment rate does not take the entire population into account, but rather the people who are able and willing to work, known as the labour force or active population.
|\dfrac{\text{Unemployed population}}{\text{Active population}}\times 100=\text{Unemployment rate}|
Calculating the unemployment rate is a good way to assess the state of the economy of developed and industrialized countries. However, this is not useful for developing countries because social and economic structures are different from those of industrialized countries. These countries are in the process of industrialization. Since unemployed people rarely have any support, such as employment insurance, people in developing countries try not to be unemployed, even if it means working in low-paying jobs under poor conditions. People can’t afford to take the time to look for a better job since this would mean losing their wages during their job search.
Economists identify different types of unemployment depending on the cause of unemployment.
Frictional, or natural, unemployment occurs when a person is between jobs, either voluntarily or due to a contract ending. It may also result from the start of a job search when entering the job market or returning to work. Because of frictional unemployment, the full employment rate is never 100%.
Full employment refers to the labour market situation of a country when everyone in the active population has a job.
Full employment does not mean that there is no unemployment. Natural unemployment cannot be completely eliminated, which is why full employment can occur when the unemployment rate is 5%. The full employment rate varies from country to country and from year to year. However, it is usually about 5%.
After completing his program in Media Art and Technology, Abdou spends 9 months looking for a job before finally landing a temporary work contract. Once this contract ends, it’s not renewed. Abdou is now frictionally unemployed because he’s looking for a new job.
Cyclical unemployment is the result of an economic downturn that causes the number of available jobs to temporarily decline. Certain workers are laid off until the economic situation improves.
The sawmill where Juliette works is closing for four months due to a downturn in the lumber market.
Structural unemployment occurs when changes are made to a country’s economic structure, such as new production methods, technological advances, etc. Certain types of jobs are no longer available. This type of unemployment includes technological unemployment. This occurs when certain types of jobs become obsolete due to technological changes.
The textile factory where Emilie works is closing down permanently due to the offshoring of this manufacturing sector, leaving Emilie without a job.
Offshoring refers to a company relocating all or part of its activities to another country to reduce production costs. This shift is generally from developed to developing or emerging countries.
Seasonal unemployment describes a situation where workers are unemployed at certain times of the year. Some people only have summer jobs, while other people only work during the winter and are unemployed the rest of the year.
Jules is a fisherman who can only work for part of the year. The rest of the year, he relies on employment insurance because there are few other jobs available where he lives.
To provide financial support to unemployed people, some governments have introduced employment insurance programs. These programs are usually funded by regular contributions from employers and employees. If workers lose their jobs, they are entitled to compensation to maintain a reasonable standard of living while looking for work. The amount of compensation varies based on the number of hours worked, the value of the contributions and the salary earned before the loss of employment.
-
A contribution is a financial contribution made by an employee to pay for a program or service, such as a pension plan or group insurance. It may be mandatory or optional. All employees are eligible according to the rules of each program.
-
Compensation is money paid to a worker for a particular situation. For example, when workers lose a job through no fault of their own, they receive compensation.
Federal and state governments regulate employment insurance. This means that each state manages its employment insurance system differently. Depending on a state’s economic situation, the federal government may provide assistance to the employment insurance system. For example, when the unemployment rate is low, the state covers all unemployment-related expenses. However, during a major financial crisis, the federal government implements a federally-funded emergency program in addition to the basic program.
Since each state has a different economic situation, employment insurance varies across the country. The following statistics illustrate the differences between states:
| State | Amount per week | |
| Lowest | Hawaii | $5.00 |
| Highest | Washington | $188.00 |
| These statistics show that Hawaiian citizens who are unemployed cannot receive less than $5.00 per week, whereas in Washington the minimum is $188.00. | ||
Data source: Unédic, 2020. |
||
| State/territory | Amount per week | |
| Lowest | Puerto Rico | $190.00 |
| Highest | Massachusetts | $1,234.00 |
| These statistics show that Puerto Rico’s unemployed citizens cannot receive more than $190.00 per week, whereas in Massachusetts the maximum is $1,234.00. | ||
Data source: Unédic, 2020. |
||
The United States views unemployment as a stabilizing factor in times of crisis. The American perspective is that unemployment is caused by economic conditions rather than political problems.
Employment insurance in Sweden has two levels. The first level is available to all jobseekers and is applied automatically. The second level is voluntary and must be applied for.
Both levels of the program are funded by the state, employers and fees from the voluntary program. The employment insurance funds manage the benefits, while the employment agency monitors unemployed people.
The monitoring and conditions involved in accessing employment insurance are very strict in order to encourage people to actively look for a new job.
Sweden focuses on social protection by making sure that people live well when their income decreases or their expenses increase, and considers unemployment to be the result of political issues rather than economic problems. Sweden considers that having a job is a right and that it should not be difficult to find a job, even if the economy is doing poorly. Sweden makes every effort to ensure that Swedish people can work even when the economy is less prosperous. If unemployment is higher, it is because the policies to stimulate employment are not adequate (Groulx, 1989).
All countries must consider global trade when managing their economies. Globalization and the establishment of multinational companies around the world are creating a global economy that involves all countries.
Globalization has led to the offshoring of production from industrialized countries to developing countries. While some countries attract new companies and create new jobs, others lose businesses, which can cause unemployment to rise.
Unemployment affects all countries to varying degrees, and each manages the issue differently. Losing a job in Canada involves different consequences and procedures than losing a job in Mali, for example.
Companies relocating to developing countries create jobs in those countries, but this also causes problems. Labour and environmental standards are often lower in developing countries, allowing companies to spend less money on wages and employee safety. People in these countries suffer from poor working conditions and foreign companies pollute the environment where they operate.
To see the effects that offshoring has on workers in developing countries, watch this video on tannery workers in Bangladesh.
Many governments have economic policies to create jobs but also several measures to help unemployed individuals. This is because, despite government efforts to achieve full employment people still become unemployed
However, workers in Canada haven’t always been able to benefit from unemployment insurance programs. Before these programs were created, people who lost their jobs didn’t get paid anything until they found a new job.
In Canada, federal assistance via unemployment insurance was introduced in the 1940s. At that time, Prime Minister William Lyon Mackenzie King created the first unemployment insurance system. The first contributions were paid on July 1, 1941.
Source: William Lyon Mackenzie King [Photograph], Library and Archives Canada, 1947, Wikimedia Commons, (URL). CC BY 2.0.
.jpg){kind=link}
During the first year, the program covered 42% of the labour force (Lin, 1998). In 1971, major changes were made to the program, extending protection to almost the entire labour force. The Unemployment Insurance Act of 1971 introduced compensation benefits for maternity leave and sick leave.
A benefit is an allowance, meaning an amount of money, paid to a person.
In Canada, the term employment insurance replaced the term unemployment insurance in 1996.
To find out more about employment insurance in Canada, see the Employment Insurance concept sheet.
In 1996, the eligibility rules of the employment insurance program were changed, as were the rules for benefits paid to unemployed persons. People’s educational backgrounds were now considered as well as changes in the labour market. The program then allowed individuals to receive benefits while training for a new job.
When the Great Depression began in 1929, there were no unemployment insurance programs in Canada. This is one of the reasons why this economic crisis was so difficult for so many people. At that time, unemployed people relied on the charity of other people. To find out more about the Great Depression and its consequences, see the concept sheet on the Roaring Twenties and the Great Depression.
The impact of this crisis on the population played a big part in the Canadian government establishing an unemployment insurance program. The government wanted to prevent the consequences of 1929’s Great Depression from happening again in the event of another financial crisis.
Over time, other temporary or permanent measures were put in place to help unemployed people. The Canada Emergency Response Benefit (CERB) is an example of temporary federal financial assistance provided to people who have lost their jobs in times of crisis. This includes health crises, such as the Covid-19 pandemic, that lead to massive job loss. This temporary assistance provides financial support to people who have lost their jobs.
Bibliothèque et Archives Canada. (1947, may). William Lyon Mackenzie King [Photograph]. https://commons.wikimedia.org/wiki/File:William_Lyon_Mackenzie_King_-_William_Lyon_Mackenzie_King_(39295031694).jpg
Groulx, L. (1989). La politique de l’emploi en Suède. Nouvelles pratiques sociales, 2(2), 23-36. https://doi.org/10.7202/301045ar
Lin, Z. (1998). Évolution de l’assurance-emploi au Canada. Statistics Canada. https://www150.statcan.gc.ca/n1/pub/75-001-x/1998002/3828-fra.pdf
Unédic. (2020). L’indemnisation du chômage aux États-Unis. https://www.unedic.org/publications/lindemnisation-du-chomage-aux-etats-unis