Unemployment Chapter 6

Measuring Unemployment  An economy with unemployment is wasting resources and producing at a point inside the production possibilities frontier. A.

Labor Force  Individuals age 16 and over, excluding those in the military, who are either employed or actively looking for work.  Employed  Unemployed – actively seeking employment

Unemployment Rate  The ratio of the number of unemployed persons to the number of persons in the labor force.  U = # of unemployed X 100 Labor force Labor force

Labor force participation  The ratio of the labor force to the population age 16 and over; expressed as a percentage  Increase in participation rate  67%  Labor fore participation and job creation depend on each other.  A strong economy leads to more people entering the job market thus slowing down the reduction in the unemployment rate

Labor Force Participation  Increase opportunities for women  Increase in minorities  Opportunities for workers to take early retirement  Better healthcare  Government aid  Individual attitudes

Unemployment rates  Unemployed means  At least 16 years old  Without work  Actively looking for a job

Problems with rate  Part time employees considered employed  Institutionalized individuals not in labor force  Underemployed  Discouraged workers  Underground economy

Types of unemployment  Frictional unemployment  Seasonal unemployment  Structural unemployment  Cyclical unemployment  Structural and cyclical unemployment are usually of most concern, because they represent involuntary unemployment

Frictional Unemployment  Unemployment associated with entering the labor market and switching jobs.  Workers have the necessary skills for the jobs available

Seasonal Unemployment  Unemployment that can be predicted to recur periodically, according to the time of year

Structural unemployment  Unemployment caused by a mismatch between a person’s human capital and that needed in the workplace  Employees do not have the necessary skills for the jobs available  Change in the goods demanded in the economy  Human capital

Cyclical  Unemployment from a downturn in the business cycle that affects workers simultaneously in many different industries.  A systematic disorder  Recessions are temporary

Unemployment Insurance  Unemployed workers may qualify for state provided payments  Fire workers do not  Contributes to higher unemployment  Actively seeking employmetn

Natural Rate of Unemployment  The minimum sustainable level of unemployment; associated with zero cyclical unemployment.  Tendency for unemployment to settle at a few percentage points above zero, due to the inevitable presence of seasonal, frictional, and structural unemployment  4%

Full employment  100 percent less the natural rate of unemployment  Everyone who wants a job has a job  Yet some people still unemployed