Unemployment

Who is unemployed? Anyone who is at least 16 years of age and is actively seeking employment © ©1999 South-Western College Publishing

Who makes up the Labor Force? All non-institutionalized people 16 years of age and older who are either working or actively looking for work © ©1999 South-Western College Publishing

What is the Unemployment rate? The number of unemployed people expressed as a percentage of the labor force Unemployment rate = Unemployed/ Unemployed + Employed

Breakdown of the US Population and the Labor Force

Survey on Unemployment Survey on Unemployment BLS calls 60,000 households every month. They ask three questions: 1. Are you working?no 1. Are you working? If the answer is no, Did you work at all this month-even 1 day? 2. Did you work at all this month-even 1 day? “yes” You are a member of the LF if “yes” on 1 or 2. Did you look for work during the last month? 3. Did you look for work during the last month? “yes” [agency, resume, interview ] A “yes” counts you as LF“no”not counted part of the LF. A “no” means you are not counted. “discouraged worker.” You are a “discouraged worker.” The labor force employedunemployed consists of the employed and unemployed.

What are some of the problems in measuring unemployment? Discouraged worker problem Part time workers Dishonest workers

Who is a Discouraged Worker? A person who drops out of the work force because he or she cannot find a job © ©1999 South-Western College Publishing

Are Discouraged Workers counted in the labor force? No! People who have quit looking for work are not counted as part of the labor force © ©1999 South-Western College Publishing

What about part-time workers? Part time workers are counted as fully employed –Whether you work one hour a week, or 80 the govt counts you as employed. –Distorts the labor force picture. Example – is unemployment in the economy going down because the new jobs being created are part-time, low skilled jobs, or are they full-time, high skill jobs? The quality of your economy depends on the answer to that question

Can the unemployment rate increase without anyone losing a job? If more people enter the work force than the number of new jobs generated, the unemployment rate increases © ©1999 South-Western College Publishing

What are different types of unemployment? Frictional Structural Cyclical Seasonal © ©1999 South-Western College Publishing

Three Types of Unemployment Frictional Frictional – “temporary”, “transitional”, “short-term.” (“between jobs” or “search” unemployment) Examples: “fired”“quit” 1.People who get “fired” or “quit” to look for a better one. “Graduates” 2. “Graduates” from high school or college who are looking for a job. “Seasonal” 3. “Seasonal” or weather-dependent jobs such as “agricultural”“construction”“retail”“tourism” “agricultural”, “construction”, “retail”, or “tourism”. [lifeguards, resort workers, Santas, & migrant workers.] “new jobs” Frictional unemployment signals that “new jobs” are available “freedom of choice”. and reflects “freedom of choice”. These are qualified workers “transferable” skills.

2.Structural Unemployment 2. Structural Unemployment Structural “technological” “long term”. Structural – “technological” or “long term”. “structure” There are basic changes in the “structure” of the labor “skills obsolete”. force which make certain “skills obsolete”. Automation Automation may result in job losses. Consumer taste Consumer taste may make a good “obsolete”. auto The auto reduced the need for carriage makers. Farm machinery Farm machinery reduced the need for farm laborers. “Creative destruction” “Creative destruction” means as jobs are created, other jobs are lost. Jobs of the future destroy jobs of “natural today. Frictional and Structural make up the “natural rate of unemployment”. “These jobs do not come back.” “Non-transferable skills” “Non-transferable skills” – choice is prolonged unemployment or retraining.

C yclical U nemployment 3. C yclical U nemployment Cyclical “ economic downturns”business cycle Cyclical – “ economic downturns” in the business cycle. “Cyclical fluctuations”“deficient AD” “Cyclical fluctuations” caused by “deficient AD” “Durable goods jobs” “Durable goods jobs” are impacted the most. can be postponedcan be repaired T hese can be postponed because they can be repaired. “Cyclical unemployment”“real unemployment”. “Cyclical unemployment” is “real unemployment”. “These jobs do come back.”

Cyclical Unemployment “These jobs do come back.” If Arnold S. gets laid off producing autos, he says,

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Seasonal

Is it possible to have a 0% unemployment rate? Not likely. At any one time, the economy could not absorb ALL the people who wanted a job. There is always some unemployment. –The best we could hope for is that there be no cyclical unemployment from the ups and downs of the economy. –There will always be some level of Frictional and Structural Unemployment. This is called: The Natural Rate of Unemployment

Graph—Natural Rate of Unemployment

What is the natural rate of unemployment? The sum of frictional and structural unemployment

What is considered Full Employment? An employment level at which the actual rate of unemployment is equal to the natural rate of unemployment –If the economy can get to this definition of Full-employment it is doing the best that it can!!! © ©1999 South-Western College Publishing

What is considered to be the natural rate of unemployment? The natural rate varies, most estimates are from 4-6% © ©1999 South-Western College Publishing

Current Unemployment Rate The current unemployment rate in the U.S. is about 8.0%. Is this good, bad, or just about right?

What is considered to be the natural rate of unemployment? The natural rate varies, most estimates are from 4-6% © ©1999 South-Western College Publishing

Frequency AnnualQuarterly Time Q3-2006Q4-2006Q Country Australia i Austria i Belgium i Canada i Czech Republic i Denmark i Finland i France i Germany i Greece i Hungary i Ireland i Italy i Japan i Korea i Luxembourg i Netherlands i New Zealand i Norway i Poland i Portugal i Slovak Republic i Spain i Sweden i Switzerland i United Kingdom i

Why do some other major economies have persistently higher unemployment rates than the U.S. Government policies are a major culprit

Unemployment Theories - Costs of Unemployment - Who pays? Perhaps the main cost of unemployment is a personal one to those who are unemployed. However, if they suffer then the whole economy suffers. Individuals may become dispirited by unemployment, they may lose their self-esteem and confidence. This may affect their motivation to work. The longer they are unemployed the more they may lose their skills and this has to be bad for the economy as well. On top of that these problems (and financial ones) often lead to the unemployed being less healthy, and then the NHS picks up the bill. The whole economy suffers from people being unemployed. As well as these microeconomic effects, there will also be macro effects. These will include: Loss of output to the economy - the unemployed could be producing goods and services and if they aren't, then GDP is lower than it could be. Loss of tax revenue - unemployed people aren't earning and they therefore aren't paying tax. The government has lost out. Increase in government expenditure - the government has to pay out benefits to support the unemployed. Along with the loss of tax this is a 'double whammy'. Loss of profits - with higher employment firms are likely to do better and make better profits. If they make less profit because of unemployment, they may have less funds to invest. The answer then is - we all pay.