Business Cycle Intensity Over Time

Many economists believe that the business cycle has become less pronounced, exhibiting briefer and shallower economic contractions. While there is economic data to support a diminished business cycle, other economists argue that the data prior to 1929 was not very accurate and tended to overstate the magnitude of the economic swings.

Whether the business cycle has become less intense has practical importance because after World War II the U.S. government initiated policies with the intent to minimize the severity of economic contractions, so a decrease in the intensity of the contractions would support the arguments of those who advocate such policies. Whether the business cycle really has declined in severity is a question that remains open to debate.

Unemployment

The percentage of the labor force that is seeking a job but does not have one is known as the unemployment rate. The unemployment rate is defined as follows:

Unemployed workers are those who are jobless, seeking a job, and ready to work if they find a job.

The sum of the employed and unemployed workers represent the total labor force. Note that the labor force does not include the jobless who are not seeking work, such as full-time students, homemakers, and retirees. They are considered to be outside the labor force.

The labor force participation rate is the percentage of the adult population that is part of the total labor force. All of these measures consider only persons 16 years of age or older.

The movement among the three groups can be illustrated as shown in the following diagram.