CHAPTER OUTLINE Unemployment Measuring Unemployment Components of the Unemployment Rate The Costs of Unemployment Inflation The Consumer Price Index The Costs of Inflation Long-Run Growth Output and Productivity Growth

By definition International Labor Organization (ILO) unemployed is anyone who is:  out of work,  looking for work and  ready to start working…

In economics, unemployment refers to the condition of unwanted job losses, or willing workers without jobs. A person who is :  Physically Fit  Mentally sound  Well qualified  Willing to work at prevailing wage rate BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT What is Unemployment?

Turkey : employed Comprises all the persons 15 years of age and over and included in the "Persons at work" and "not at work". unemployed comprises all persons 15 years of age and over who were not employed during the reference period who have used at least one channels for seeking a job during the last three months and were available to start work within 2 weeks.

The basic concepts involved in identifying the employed and unemployed are quite simple:  People with jobs are employed.  People who are jobless, looking for jobs, and available for work are unemployed.  People who are neither employed nor unemployed are not in the labor force.

PERSONS NOT IN LABOUR FORCE : 1. Sought a job, but not using the channel in the last three months 2. Available to start a job but not actively seeking 3. Seasonal workers 4. Housewives 5. Student 6. Retired persons 7. Having Property Income 8. Disabled, old or ill

Labor Force - The total number of people employed or seeking employment in a country or region. Also called work force.

population = labor force + not in labor force

labor force participation rate The ratio of the labor force to the total population.

Unemployment Rates by Demographic Group, 1982 and 2010 YearsNovember 1982June 2010 Total White Men Women Both sexes16– African American Men Women Both sexes16– Unemployment Rates for Different Demographic Groups

The decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force.

Duration of unemployment represents the length of time (through the current reference week) that persons classified as unemployed had been continuously looking for work. For persons on layoff, duration of unemployment represents the number of full weeks since the end of their most recent period of employment.

Some Unemployment Is Inevitable types When we consider the various costs of unemployment, it is useful to categorize unemployment into three types:  Frictional unemployment  Structural unemployment  Cyclical unemployment

frictional unemployment The portion of unemployment that is due to the normal turnover in the labor market; used to denote short-run job/skill matching problems.

structural unemployment The portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.

natural rate of unemployment The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment rate and structural unemployment rate.

cyclical unemployment Unemployment that is above frictional plus structural unemployment.

EFFECTS TO THE ECONOMY & GOVERNMENT  Unemployment leads to under-utilization of resources  Economy therefore cannot reach its optimum production level  Productivity falls….GDP falls…economic growth falls  Higher crime rates…government spending on security… etc-police … increases  In developed countries they become a burden to the government … must pay more unemployment benefits  Government tax revenue falls…since less people working

The CPI market basket shows how a typical consumer divides his or her money among various goods and services. Most of a consumer’s money goes toward housing, transportation, and food and beverages. The CPI Market Basket

During inflations, most prices — including input prices like wages — tend to rise together, and input prices determine both the incomes of workers and the incomes of owners of capital and land. So inflation by itself does not necessarily reduce ones purchasing power.

The effects of inflation depends in part on whether inflation is : anticipated or unanticipated anticipated or unanticipated Anticipated inflation: When people/businesses can make accurate predictions of inflation, they can take steps to protect themselves from its effects. e.g. Households may also be able to switch savings into deposit accounts offering a higher nominal rate of interest or into other financial assets such as housing or equities where capital gains over a period of time might outstrip general price inflation. e.g. Companies can adjust prices and lenders can adjust interest rates. Unanticipated inflation: When inflation is volatile from year to year, it becomes difficult for individuals and businesses to correctly predict the rate of inflation in the near future. Unanticipated inflation occurs when economic agents (i.e. people, businesses and governments) make errors in their inflation forecasts.

output growth The growth rate of the output of the entire economy. per-capita output growth The growth rate of output per person in the economy. productivity growth The growth rate of output per worker.

consumer price index (CPI) cyclical unemployment discouraged-worker effect employed frictional unemployment labor force labor force participation rate natural rate of unemployment not in the labor force output growth per-capita output growth producer price indexes (PPIs) productivity growth real interest rate structural unemployment unemployed unemployment rate 1.labor force = employed + unemployed 2. population = labor force + not in labor force 3. 4.