Unemployment & Business Cycle

Business Cycle Irregularities of Investment Change in productivity Causes Irregularities of Investment Change in productivity Changes in total spending Durable goods are most susceptible to affects of business cycle. Why?

GDP and Business Cycle

Unemployment Labor Force Total U.S. population split into 4 groups Under 16/ institutionalized 74.7 mil Labor Force People who are able and willing to work About 50% of population Total U.S. population split into 4 groups Under 16 or institutionalized “Not in labor force” Discouraged workers College students, homemakers, retirees Employed Work at least 1 hr in 2 weeks Unemployed Not worked in past 2wks-12 months “Not in labor force” 71.4 mil Total Population: 288.6 Million Employed 134.2 mil Unemployed 8.3 mil

Current Unemployment Data Unemployment Rate (u%)= 9% (bls.gov), 9.8% (gallup poll) Not in Labor Force: +3% Discouraged workers: +50%

Types of Unemployment Frictional “Between jobs” Voluntary move or fired/laid off Changes from month-month are inevitable Frictional—market does not operate perfectly

Types. . . Seasonal Structural Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc. Structural Lack of skills or decline in industry i.e. High School drop-out, typewriter repairman Think “Creative Destruction” Geographical Migration of industry Overseas, urban to suburban

Types. . . Cyclical Higher unemployment from decline in spending Recessionary phase Most serious problem

Full Employment No Cyclical Unemployment Level of unemployment when economy is at full potential Best known as: Natural Rate of Unemployment (NRU) Approx. 4-5%

Why Unemployment is bad Okun’s Law: (Arthur Okun) Every 1% increase in u% causes 2% decrease in GDPr

UR Practice Determine which of the following are unemployed. If unemployed, then determine the type of unemployment. If not unemployed, then write down ‘not in labor force.’ Arvod cannot find work as a mall Santa in January. Beulah leaves her job to become a stay at home mom. Grover is laid off of work when the economy experiences a recession. Tuabulu dropped out of his G.E.D. program and has difficulty finding work. Boris, the human calculator, is replaced by the TI-83. Nimrod leaves his job as a teacher to look for work in the fast food industry. Queen Oli-go-poly graduates from college and begins looking for work. Kimple has difficulty finding a job as a life guard after Labor Day. Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He has difficulty finding a girlfriend. Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.