CHARACTERISTICS OF UNEMPLOYMENT

Unemployment is characterized by many elements. Analysis of these

elements is key to attaining a thorough understanding of the various
forces driving unemployment and consequential impacts.
1. Key characteristics in unemployment data
During the collection of statistics on unemployment over a sample of
60,000 households, several key characteristics of household members are
taken into account. These include age, sex, race, Hispanic ethnicity,
marital status, educational attainment, veteran status, and so on (Bauer,
2015).
Such characteristic are recorded and updated in the Current Population
Survey, or CPS, every month. In the CPS for January 2016 (Bureau of Labor
Statistics [BLS], 2016), some general trends can be observed.
Looking at monthly data (BLS, 2016), unemployment rate has been on a
steady decline by 0.8 percent overall from January 2015 to January 2016.
According to seasonally adjusted household by age, sex and marital
status, the 16 to 19-year-old group has the highest unemployment rate;
there are slightly more unemployed men than women; while married
women has a higher rate than married men (BLS, 2016). Considering the
characteristic of reasons for unemployment, the CPS categorizes the
reasons into four main ones: job losers and persons who completed
temporary jobs (on temporary layoff and not on temporary layoff), job
leavers, reentrants and new entrants; of which job losers and persons who
completed jobs make up the highest rate (BLS, 2016). Most of these
unemployed persons are not on temporary layoff.
Lastly,

the

CPS

also

characterize

unemployment

by

duration

of

employment: less than 5 weeks, 5 to 14 weeks and 15 weeks and over; of

which nearly half of the total unemployed have stayed unemployed for 15
weeks and over (BLS, 2016). All in all, there are large variations in
unemployment rate across the characteristics mentioned above, while the
compositions of most categories remain unchanged.
2. Lengths of Unemployment
Unemployment can be short-term or long-term. The U.S Department of
Labor (Silvia & House, 2014), defines short-term unemployment as any

unemployment period that lasts 26 weeks or less. The unemployment

period is temporary and often pertains within the time needed to switch
from one job to another, with a relatively short searching period. According
to the ILOs Key Indicators of the Labor Market (KILM) (Key Indicators of the
Labor Market, 2011), short-term unemployment are of less concern,
especially when unemployed persons are covered by unemployment
insurance

schemes

or

similar

forms

of

support.

The

short-term

unemployed may even be considered more advantaged as they have time

to seek optimal employment. It is also beneficial for employers, in periods
of business slowdown, to temporarily let go of employees and re-hire them
later. On the other hand, long-term unemployment is classified as
unemployment that lasts for 27 weeks or more (BLS, 2016). Individuals
can suffer astounding consequences from being unemployed over a long
period of time. KILM states that the longer a person is unemployed, the
lower his or her chance of finding a job, as their skills and qualifications
lessen over time. When the job market bounces back or expands, many
such individuals will no longer match the new requirements. Long-term
unemployment

usually

pertains

to

certain

groups

and

respective

characteristics, such as older or unskilled workers and those who have

lost their jobs through redundancy. Within the economy, long-term
unemployment suggests structural problems in the labor market,
impacts

individuals

physical

and

mental

wellbeing,

increases

socioeconomic inequality and hampers long-run economic growth (KILM,

2011; Nichols, Mitchell, & Lindner, 2013). Generally, high ratios of longterm unemployment reflect grave employment concerns in the market and
poor creation of jobs; whereas a larger percentage of short-term
unemployment points to a high job creation rate and more turnover and
mobility in the labour market.
Bovino

affirms

that

Short-term

unemployment,

instead

of

total

employment, is a better predictor of price and wage moves in the recent

recovery in the labor market (Morath, 2014). Evidence shows that a falling
short-term rate tallies with stronger wage gains there is a demand for
people recently out of work from employers. Those who are in shorter
periods of unemployment tend to possess more up-to-date skills and be
better prepared to become productive. Therefore if employers wish to
appeal to workers, they may have to raise wages. On the other hand,

because it is so hard for the long-term unemployed to return to steady

work, they do not put as much downward pressure on wages, according
to Alan Krueger (Krueger, Cramer, & Cho, 2014).
Research by Kosanovich and Sherman (2015) finds that, today, long-term
unemployment is high by historical standards. It peaked as a consequence
of the Great Recession of 20072009, arriving at a record high of 6.7
million in 2010. The number and share of the long-term unemployed
typically continue to increase after a recession ends, before falling during
a labor market recovery. In this cyclical pattern, we observe that the
share unemployed for 99 weeks or longer reached a record peak at 15.1
percent in the fourth quarter of 2011, and fell afterwards while remaining
relatively high. Even five years after the Great Recession, the share of
long-term unemployed in total unemployment remained the largest
among previous recessions records. Statistics from 1994 to 2014 shows
that Blacks and Asians are more likely to be long-term unemployed. Longterm unemployment does not vary by education but across industries.

3. Turnover rate as an indicator of unemployment

Turnover rate is an essential indicator of the unemployment situation.
Labour turnover is concerned with movements of individuals into jobs
(hirings)

and

out

of

jobs

(separation)

over

particular

period

(Organisation for Economic Co-operation and Development [OECD], 2008,

p. 300). The OECD defines turnover rate as the absolute sum of net
employment changes across all establishments or firms expressed as a
percentage of total employment. There are two types of turnover:
voluntary and involuntary which includes functional and dysfunctional subtypes (Dias, 2016). According to BLS (2016), turnover is referred to as
separations, comprising of quits, layoffs and discharges, and other
separations. Quits are generally voluntary separations initiated by the
employee. Therefore, the quits rate can serve as a measure of workers
willingness or ability to leave jobs. Layoffs and discharges are involuntary
separations

initiated

by

the

employer.

Other

separations

include

separations due to retirement, death, and disability, as well as transfers to

other locations of the same firm. Therefore a measure of the turnover rate
can factor into reasoning for unemployment.
Nowadays, turnover rates are higher than in the past. More and more
employers are finding that employees remain for approximately 23 to 24
months, according to the data from Job Openings and Labor Turnover
News Releases (BLS, 2016). Turnover rates are much lower in Europe than
in the U.S (Cohen, Piketty, & Saint-Paul, 2002, p. 338).
Apart from some exceptions, turnover, as well as inflows and outflows
separately, have a positive relationship with the unemployment rate
(Pastore & Tyrowicz, 2013). Strong evidence also points to positive
correlations between turnover and unemployment rate by industry and by
region (Layard, Nickell, & Jackman, 2005, p. 305). According to Wolinski
and Coates, Successive CIPD surveys of labour turnover show that the
highest levels are typically found in retailing, hotels, catering and leisure,
call centres and among other lower-paid private sector services. There
are regional variations in labour turnover levels. Typically, rates are
highest where unemployment is lowest as people can easily find and keep
attractive alternative jobs.
Marston (1976) in Brookings Papers on Economic Activity also found that
blacks, teenagers and women are the demographic groups with the
highest turnover rates, correlating with high unemployment rates.
(Marston, 1976, p. 195)
4. Unemployment and turnover rate are mostly cyclical, varying
with cycles of economic recessions and booms.
To examine this characteristic of unemployment, we must first revisit the
definitions of economic recession and expansion. The National Bureau of
Economic Researchs Business Cycle Dating Committee (2009) defines a
recession as a significant decline in economic activity spread across the
economy, lasting more than a few months, normally visible in real GDP,
real income, employment, industrial production, and wholesale-retail
sales. According to OSullivan and M. Sheffrin (2003), an expansion is an
increase in the level of economic activity and the goods and services
available. It is a period of economic growth as measured by a rise in real

GDP (O'Sullivan & Sheffrin, 2003, p. 310). In the last 50 years there have
been four global recessions, most recently the year-long 2009 recession.
Over the course of history, the trends in official unemployment rate
present the cyclical nature of unemployment. According to Brundage
(2014), the rate was steadily declining from 1994 to 2001 when it
suddenly rose due to the onset of the 2001 recession. It continued to go
upward before declining in mid 2003 when the economy started to
settle. During the longest and deepest recession of the post-World War II
era, from 2008 to 2010, the unemployment rate rose quickly and peaked
at an all-time-high of 10% in October 2009. It steadily went down from
2010 and has not returned to its prerecession level.
There is a pattern in turnover, or separations, across economic cycles.
While the number of job openings, hires, and separations went down in
2009, demand for labor and labour market churn (movement to and from
employment through hires and separations) continued (Bauer, 2015).
The Job Opening and Labor Turnover Survey (JOLTS) measure separations
data comprising quits, layoffs and discharges, and other separations.
Separations are high during a recession, but its measure is complex. Of its
four components, quits are considered procyclical since workers generally
quit more during economic expansions (when more jobs are available) and
quit less during economic contractions (when fewer jobs are available).
Layoffs and discharges, on the other hand, are considered countercyclical.
Establishments retain workers during expansions and lay off workers
during contractions. In short, during an expansion, more people quit their
jobs and fewer are laid off; while during a recession, more people are laid
off and fewer voluntarily quit their jobs, according to Hathaway (2013).
In

additions,

job

openings

and

unemployment

have

an

inverse

relationship, which is represented by the Beveridge curve plotted by the

Federal Reserve Bank of St. Louis (2014). During an economic expansion,
job openings are high and unemployment is low; during an economic
contraction, job openings are low and unemployment is high. Job Openings
and Labour Turnover Survey (JOLTS) (Hathaway, 2013) data shows that,
while labor demand, as measured by the number of job openings,
increased during 2012, worker flow, in the form of an increase in hires and
separations,

has

been

slower

to

improve.

Nevertheless,

layoffs,

discharges and other separations are now at prerecession levels, helping

to steady the growth of the labor market as involuntary separations have

reduced and these secure employees are less concerned and worried
about retiring again.
Marston further notes that the rise in number of separations is not that
dramatic during recession because heavier layoffs are partially offset by
reduced

quits.

Layoffs

tend

to

go

up

during

periods

of

high

unemployment whereas quits strikingly decline because workers try to

evade unemployment at all costs.

As firms cyclically end their hiring

period, cyclical unemployment takes place. With recession, unemployment

spells lengthen dramatically and new entrants to the labor force find it
difficult to get jobs (Marston, 1976).
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