Unemployment

Unemployment

1. population

   • working age population
     • ppl in labour force
       • labor force: sum of employed and unemployed workers.
     • ppl not in labor force
   • Ppl too young to work (under 16)

2. willing & able to work and belong to 1 of the 3 categories

   • Without work but has made specific efforts to find a job within the previous four weeks
   • Waiting to be called back to a job from which he or she has been laid off
   • Waiting to start a new job within 30 days

3. Results in Lost incomes and production & Lost human capital

4. Three Labor Market Indicators

   • labor force participation rate
     • percentage of the working-age population who are members of the labor force.
     • (Labor force ÷ Working-age population) x100
   • employment-to-population ratio
     • percentage of the working-age population who have jobs.
     • (Employment ÷ Working-age population) x 100
   • unemployment rate
     • percentage of the labor force that is unemployed
     • (Number of people unemployed ÷ labor force) x100

5. The purpose of the unemployment rate is to measure the underutilization of labor resources

6. But the official measure is an imperfect measure because it excludes Marginally attached workers & Part-time workers who want full-time jobs

   • A marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the recent past
     • A discouraged worker is a marginally attached worker who has stopped looking for a job because of repeated failure to find one
   • Many part-time workers want to work part time, but some part-time workers would like full-time jobs and can’t find them. In the official statistics, these workers are called economic part-time workers and they are partly unemployed

7. All unemployment is costly, but the most costly is long-term unemployment that results from job loss

8. Alternative Measures of Unemployment

   • The narrower measures, U-1 and U-2, focus on the personal cost of unemployment
   • The broader measures, U-4, U-5, and U-6, focus on assessing the full amount of unused labor resources

9. Types of unemployment

   • cyclical
     • higher than normal unemployment at a business cycle trough and lower than normal unemployment at a business cycle peak
     • A worker laid off because the economy is in a recession and is then rehired when the expansion begins experiences cycle unemployment
   • structural
     • unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs
     • lasts longer than frictional unemployment
   • frictional
     • unemployment that arises from normal labor market turnover
     • The creation and destruction of jobs requires that unemployed workers search for new jobs
     • Increases in the number of people entering and reentering the labor force and increases in unemployment benefits raise frictional unemployment
     • permanent and healthy phenomenon of a growing economy
   • “Natural” Unemployment
     • unemployment that arises from frictions and structural change when there is no cyclical unemployment
     • natural unemployment rate is natural unemployment as a percentage of labor force
     • changes over time and is influenced by: age distribution of the population, scale of structural change, real wage rate, Unemployment benefits

10. Full employment

    • unemployment rate equals the natural unemployment rate
    • When the economy is at full employment, there is no cyclical unemployment or, equivalently, all unemployment is frictional and structural

11. Real GDP and Unemployment Over the Cycle

    • Potential GDP is the quantity of real GDP produced at full employment
      • corresponds to the capacity of the economy to produce output on a sustained basis
      • Real GDP - potential GDP is the output gap
    • Over the business cycle, the output gap fluctuates and the unemployment rate fluctuates around the natural unemployment rate