The unemployed are searching for/available for work (4 weeks) Employed + Unemployed = Labor force Labor force participation rate =Labor force X 100 Population 16 or older Unemployment rate:Number of unemployed X 100 Labor force

 The figure itself is an estimate based on random sampling of 60,000 households scaled up  Tends to understate the true level (though it can overstate it as well!) ◦ Discouraged workers ◦ Marginally attached workers ◦ Underemployed workers  These are not accounted for in the standard unemployment statistics (U3), but in U6 only

Most easily employed groups Most often unemployed groups  Experienced workers  “Prime ages” (25-54)  White and Asian  Low educational attainment  African Americans  Under 25 and over 55

 Recessions are linked to rising unemployment; expansions see falling unemployment (in the long run)  “Growth recession” - Below-average growth is normally accompanied by rising unemployment  Okun’s Law – About a 2% decrease in output (GDP) for every 1% increase in unemployment  Okun’s Law is based on observation, not theory, so it is approximated and has been adjusted a little over time

 Frictional unemployment - Unemployment due to time workers spend in job search  Frictional unemployment is the result of constant process of job creation/destruction

 Structural unemployment – results when the number seeking jobs is greater than jobs offered of a certain type or at current wage structure  Structural unemployment can occur when wage is set permanently above the equilibrium wage, creating a surplus  Most often the result of:  Government policies  Unions  Mismatch

 Cyclical unemployment – result of the business cycle; accompanies downturns in growth

 Natural rate of unemployment – normal rate Natural rate = Frictional + Structural Actual rate = Natural + Cyclical  Natural rate changes over time as a result of: ◦ Changes in Labor Force ◦ Changes in Labor Market ◦ Changes in Government Policy

Categorize each of the following (C, F, or S):  A literary editor leaves her job in New York to look for a new job in San Francisco.  Advances in technology make the assembly-line worker’s job obsolete.  A high school graduate lacks the skills necessary for a particular job.  Workers are laid off when the local manufacturing plant closes because the product made there isn’t selling.