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Economic Theory

The labor force comprises the employed and the unemployed. Thus
working age population is the number of employed plus the number of
unemployed and plus the number of out of the labor force.
Employed: currently working for pay.

Unemployed: out of work and actively looking for a job.
Out of the labor force: out of paid work and not actively looking for a

job.
Labor force: the sum of the employed and the unemployed.
The unemployment rate is not the percentage of the total adult
population without jobs, but rather the percentage of adults who are in the

labor force but who do not have jobs:

. (4.1)

The employment rate is calculated as follows:

. (4.2)

Economists distinguish between three major kinds of unemployment,
i.e., cyclical, frictional and structural. Real-world unemployment may
combine different types, while all tree might exist at one time. The

magnitude of each of these is difficult to measure, partly because they
overlap and are thus hard to separate from each other. All but cyclical
unemployment can be seen as existing at full employment, the level of

employment and unemployment that represents the inflation barrier to
demand-side growth.
Cyclical unemployment exists due to inadequate effective aggregate
demand. The variation in unemployment caused by the economy moving

from expansion to recession or from recession to expansion (i.e. the
business cycle) is known as cyclical unemployment. Unemployment tends
to rise in recessions and to decline during expansions. It gets its name

because it varies with the business cycle, though it can also be persistent,
as during the Great Depression of the 1930s. Gross Domestic Product is
not as high as potential output because of demand failure, due to (say)

pessimistic business expectations which discourages private fixed
investment spending. Low government spending or high taxes, under
consumption, or low exports net of imports may also have this result.

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