An Unemployment Rate Extremely Sensitive to the Economic Situation

Unemployment is used as a measure of the health of an economy. An unemployed person is a person of working age who simultaneously meets three conditions:

· be unemployed, i.e., not having worked, even for one hour, during a reference week;

· be available to take a job; and

· actively looking for a job.

Unemployment is measured by the “unemployment rate” — which is the number of people 16 and over actively searching for a job as a percentage of the total labor force.[i] The total labor force includes the population of people who are actively employed and those considered unemployed.

From an economic point of view, unemployment is interpreted as the result of an imbalance between supply and demand in the labor market. Several forms of unemployment can be described:

1. Natural (or frictional) unemployment: It is due to the fact that every day there are, for various reasons, new job seekers, and that there is always a lag time between the start of the job search and entering a new job. A zero unemployment rate can therefore not be achieved.

2. Cyclical or (Keynesian)[ii] unemployment: it is a slowdown in the economic activity causing a temporary reduction in the need for labor in the economy.

3. Structural unemployment: it is related to changes in economic structures in a country, causing a qualitative mismatch between supply and demand for labor.

4. Technical unemployment: it is related to technological innovations or changes; workers are either replaced by machines or made the job easier and requires fewer workers for the same task.

5. Partial unemployment: it can be caused by an abnormal drop-in activity of the company which is forced to reduce working hours.

6. Seasonal unemployment: it concerns certain professional branches whose activity varies significantly depending on the period of the year.

In Illinois, unemployment is measured using employment surveys conducted by the Illinois Department of Employment Security (“IDES”).

Why does this matter?

According to the United States Bureau of Labor Statistics (“BLS”), when workers lose their jobs, the worker loses the wages corresponding to the lost job. As a result, the economy loses the contribution that said worker makes in terms of purchasing goods and services in the economy. When unemployed workers lose their purchasing power, this situation leads to a slowdown in the production of other goods and services by businesses — also referred to as firms — that supply them. This in turn causes unemployment of other workers in different sectors.[iii]

When firms slow down production, they try to cut costs, often by reducing the workforce as a cost-saving measure, which can result in company layoffs of employees. This is precisely what happened during the pandemic when states implemented stay-at-home orders: the result was less economic activity in certain industries, such as food services and drinking, accommodation, clothing stores, gas stations, and more.[iv] The lack of activity in these industries meant the labor market was reduced because there was no longer a demand for some goods or services, and the unemployment rate sky-rocketed.

COVID-19 Unemployment

In February 2020, just before the Covid-19 crisis, the unemployment rate in Illinois was at 3.6%. In April 2020, two months later and at the height of the crisis, the unemployment rate climbed to 16.5%, before falling to 9.8% in September as a result of some economic recovery.

Illinois is still far from full employment, but the unemployment rate has fallen below the 10% mark. This overall rate, however, does not reflect the disparities by race and ethnicity.

In Illinois, as well as in the entire U.S., the unemployment rate increased in 2020 for all racial groups. The average unemployment rate in Illinois was 14.4% for Black workers, 12.0% for Hispanic workers, and 8.5% for white workers.[v] In both Illinois and the U.S., Black workers historically have had the highest unemployment rate among all major racial and ethnic groups, and have historically had a rate of unemployment that is at least double the rate of unemployment for whites.[vi] Since the data by race and ethnicity started to be reported in 1981, the unemployment rate for Hispanic workers has always exceeded the unemployment rate for white workers by at least one percentage point. However, the difference between the Hispanic and white unemployment rates had widened significantly in 2020; meanwhile, Hispanic workers had lower unemployment rates compared to Black workers, as seen in Figure 3.

In Figure 3 above, the unemployment rate for Black and Hispanic workers is greater than that for white workers. One reason for higher rates of unemployment is tied to educational attainment and economic opportunity; the more educated the workers, the more economic opportunities, the lower the unemployment rate. During the pandemic, this was exacerbated, with Black and Hispanic workers seeing higher rates of unemployment and larger wage gaps compared to white workers.[vii]

While the pandemic is not yet over, it is important for Illinois to focus on continuing ways to support economic and employment growth, particularly for Black and Hispanic workers. Providing adequate employment opportunities is vital for a growing economy. With Illinois’ increase to the $15 minimum wage,[viii] advancement is being made, but the availability of opportunities for Black and Hispanic unemployed workers is still in need of progress.

[i] https://fred.stlouisfed.org/series/UNRATE

[ii] Keynesian unemployment is distinct from classical unemployment, where wage rates are too high relative to productivity for employment to be profitable, and structural unemployment, where the unemployed lack the skills needed by prospective employers, or firms do not have the equipment needed to take on more workers.

[iii] How the Unemployment Rate Affects Everybody (investopedia.com)

[iv] https://www.bea.gov/recovery/estimates-from-payment-card-transactions

[v] Women_and_Minorities_Unemployment.pdf (illinois.gov)

[vi] Women_and_Minorities_Unemployment.pdf (illinois.gov)

[vii] https://www.epi.org/publication/black-workers-covid/; https://www.epi.org/publication/latinx-workers-covid/

[viii] https://abc7chicago.com/minimum-wage-chicago-illinois-2021-cook-county/10849920/#:~:text=The%20Illinois%20minimum%20wage%20is,hour%20on%20January%201%2C%202025.