Question

How do unemployment rates vary by race and ethnicity, gender, occupation, and education? Why does the average length of time people are unemployed rise during a recession?

Short answer

The unemployment rate is higher for ethnic minorities, women, black people, and the LGBTQ communities. It is also higher in lower-skilled jobs/occupations.

The average length of unemployment rises during a recession because it takes time to recover from the business cycle resulting from low aggregate demand and low investment/ output production.

Step-by-step solution

Reasons for variation in unemployment rates

The variation in the unemployment rates is described below:

Race and ethnicity: The majority of the countries see some form of discrimination against racial and ethnic minorities. For example, the unemployment rates for black Americans and Hispanics are higher than for white Americans. Black Americans and Hispanics are generally unable to attain higher education and skills, and they face discrimination in the labour market. As a result, they remain concentrated in lower-skilled jobs.

The lower-skilled jobs are prone to seasonal unemployment and market dynamics. Firms invest less in unskilled employees. It is easier for them to fire or replace these workers.

Gender: Women and LGBTQ face discrimination in the labour market because of their gender. The societal and cultural stereotypes/norms make it harder for them to get employed. They make a smaller share of the labour force and an even smaller share in employment. Therefore, the rate of unemployment for women and the LGBTQ community is higher than for men.

Occupation: Higher-skilled jobs are more permanent than lower-skilled jobs because firms invest more in higher-skilled jobs. The lower-skilled jobs are more vulnerable to seasonal and cyclical unemployment.

Education: Highly educated workers engage in higher-skilled and more permanent jobs as compared to less-educated workers. Therefore, the unemployment rate is higher for less-educated workers.

Extension of unemployment period during a recession

During a recession, the aggregate demand in the economy contracts, reducing private consumption. The revenue and profit for private firms shrink. As a result, the firms are less willing to invest and employ more people. The firms lay off existing workers to reduce costs and avoid surplus (due to low aggregate demand).

The fired labour remains unemployed until the demand for goods and services recover. It takes time to change the business sentiments and encourage investment activities. Thus, the duration of being unemployed extends till the effect of the business cycle (recession) reduces and the growth period starts.