The proportion of the labor force out of work but actively seeking jobs, a long-standing concern of economic policy.
The Massachusetts Bureau of the Statistics of Labor, in its 1887 survey of workers involuntarily without employment, coined the noun “unemployment.” The measured percentage of unemployment always remains positive because of fric-tional, structural, and seasonal unemployment. Frictional unemployment describes workers who seek better-paying jobs that make the best use of their skills rather than taking the first available position, and it contributes to efficient matching of jobs and workers. Structural unemployment occurs when the skills of workers no longer match those demanded by employers because of technological change or when workers live in depressed areas (inner cities or Ap-palachia, for example) where jobs are scarce. The seasonal nature of much work contributes to unemployment at certain times of year.
Policymakers focus most on unemployment due to macroeconomic fluctuations, with high unemployment in the depression years of 1873-1878, 1883-1885, 1893-1897, 1921, and 1929-1940. The coincidence of declining prices under the gold standard (in which currency is completely backed by gold) from 1873 to 1896 with three panics led to Populist Party agitation for bimetalism, which would establish gold and silver as legal tender, thereby increasing the money supply and causing a decline in inflation and an increase in employment. Retrospective estimates of unemployment range from less than 2 percent of the civilian labor force in the boom years of 1906, 1918, and 1919 to more than 18 percent in 1894 (although Christina Romer has argued that a somewhat narrower range of fluctuation existed). Before the Great Depression of the 1930s, public policy response to unemployment concentrated on relief to the unemployed (including public works and unemployment insurance programs of individual states, as well as private charity) and on labor exchanges to speed the matching of jobs and workers.
The Great Depression, with its high unemployment from late 1929 to 1940 peaking at one-quarter of the civilian labor force in 1933, changed the focus of policy from amelioration of the condition of the unemployed to the use of countercyclical monetary and fiscal policy to prevent recurrence of high levels of unemployment. These policies included interest rate adjustments along with tax increases and government spending, and they remained in place during the immediate postwar period (1945-1970). From the 1970s onward, monetarists (for whom the supply of money is the most important economic measure) and new classical economists (who believe that prices and wages adjust quickly according to the natural cycle of supply and demand ) increasingly influenced policy, arguing that there exists a natural rate of unemployment and that aggregate demand management (increased government expenditure to stimulate the economy) cannot achieve any lasting reduction of unemployment below this natural rate. Both monetarists and new classical economists stressed instead the supply-side effects of tax rates and minimum wages on the natural rate of unemployment. New Keynesian economists, on the other hand, have continued to insist on a role for aggregate demand management in controlling fluctuations in output and employment.
