1. Unemployment

2. Definition of unemployment How to measure unemployment
Types of unemployment
Impacts of unemployment

3. Definition of unemployment
The state of being without any work both for an educated & uneducated person, for earning one's livelihood is meant by unemployment.
Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full-time employment.
Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. 

4. Definition of unemployment How to measure unemployment
Types of unemployment
Impacts of unemployment

5. Labor Force Statistics
BLS divides population into 3 groups:
employed: paid employees, self-employed, and unpaid workers in a family business
unemployed: people not working who have looked for work during previous 4 weeks
not in the labor force: everyone else
The labor force is the total # of workers, including the employed and unemployed.
Good idea: Tell students to take good notes on this slide and the following one, because in a moment they will have to use these definitions to solve a problem. You can tell them the problem is very similar to what they might see on their next exam – that always gets their attention!
Basically, someone is considered “employed” if they’re working. Someone is “unemployed” if they aren’t working but want to be.
Someone is “not in the labor force” if they aren’t working and aren’t trying to find a job.

6. Basically, some people are considered “employed” if they’re working.
Some people are “unemployed” if they aren’t working but want to be.
Some people are “not in the labor force” if they aren’t working and aren’t trying to find a job.
Many variations of the unemployment rate exist with different definitions concerning who is an "unemployed person" and who is in the "labor force.“

7. Labor Force Statistics
Unemployment rate (“u-rate”): % of the labor force that is unemployed
u-rate
# of unemployed
labor force
= 100 x
Many of the following slides abbreviate “unemployment rate” as “u-rate” to reduce slide clutter and to reduce the burden on students who are rushing to copy everything on the screen into their notes.
CHAPTER UNEMPLOYMENT

8. Definition of unemployment How to measure unemployment
Types of unemployment
Impacts of unemployment

9. BREAKING DOWN 'Unemployment’
While the definition of unemployment is clear, economists divide unemployment into many different categories. The broadest two categories of unemployment are voluntary and involuntary unemployment.
When unemployment is voluntary, it means that a person has left his job willingly in search of other employment.
When it is involuntary, it means that a person has been fired or laid off and now must look for another job.

10. Frictional Unemployment
Frictional unemployment arises when a person is in-between jobs. After a person leaves a company, it naturally takes time to find another job, making this type of unemployment short-lived. It is also the least problematic from an economic standpoint. There is always likely to be some frictional unemployment in an economy as people take time to find a job suited to their skills.

11. Cyclical Unemployment
Cyclical unemployment comes around due to the business cycle itself. Cyclical unemployment rises during recessionary periods and declines during periods of economic growth. For example, the number of weekly jobless claims in the United States has slowed in the month of June, as oil prices begin to rise and the economy starts to stabilize, adding jobs to the market.

12. Structural Unemployment
Structural unemployment comes about through technological advances, when people lose their jobs because their skills are outdated. Firms demand different skills from what is offered by the supply side.

13. Seasonal unemployment
In certain regions (or jobs), unemployment may be seasonal e.g. unemployment in the beach coast area rises in winter when there are no tourists. Also agriculture „suffers“ of seasonal unemployment

14. Real Wage Unemployment / Classical Unemployment
This occurs when wages are artificially kept above the equilibrium. For example, powerful trades unions or minimum wages could lead to wages above the equilibrium leading to an excess supply of labour 

15. Explaining Classical Unemployment
unemployment W L S
Occurs when wage is kept above eq’m.
Three reasons for above-equilibrium wages include minimum wage laws, unions, and efficiency wages.
actual wage W1 D WE
On this graph, WE is the equilibrium wage.
CHAPTER UNEMPLOYMENT

16. Cyclical Unemployment vs. the Natural Rate
There’s always some unemployment, though the u-rate fluctuates from year to year.
The natural rate of unemployment
the normal rate of unemployment around which the actual unemployment rate fluctuates
the level of unemployment when the labour market is in equilibrium. It is the difference between the labour force and those willing and able to accept a job at going wage rate. It consists of frictional and structural unemployment.
cyclical unemployment
the deviation of unemployment from its natural rate; associated with business cycles
Unemployment is a serious and complicated problem with a variety of causes. To most effectively address such a problem, we need to break it down and look at each cause separately.
We begin by noting that the causes of short-run fluctuations in unemployment are different than the causes of the long-run average unemployment rate, called the “natural rate of unemployment.”

17. Natural rate of unemployment
U.S. Unemployment Since 1960
Unemployment rate
Natural rate of unemployment
Cyclical unemployment is the gap between the red and blue lines. When the economy is in recession – the bad part of the business cycle - the actual unemployment rate is higher than the natural rate, and cyclical unemployment is positive. When the economy is in the good part of its business cycle, unemployment is below normal and cyclical unemployment is negative.
Source: same as textbook.
The unemployment rate comes from the Department of Labor and is available at
The natural rate of unemployment series is prepared by the Congressional Budget Office. I have not been able to find it at the CBO website ( It is available (with tons of other data) at paid subscribers can download it in Excel format; others can view it at their site for free.
If you find a free source for the CBO’s natural rate series, please let me know! Thanks.

18. Definition of unemployment How to measure unemployment
Types of unemployment
Impacts of unemployment

19. Costs of unemployment
There are individual, social and socio-political costs of unemployment
The economic and social costs of unemployment include personal costs (lost income), costs to government (lost tax revenue) and costs to society in general (social problems, lost GDP).

20. Loss of earnings to the unemployed
Loss of earnings to the unemployed. Unemployment is one of the biggest causes of poverty
Potential homelessness. Loss of income can leave people without sufficient income to meet housing costs. Rises in unemployment often exacerbate the rates of homelessness.
Harms future prospects. Those who are unemployed will find it more difficult to get work in the future (this is known as the hysteresis effect)

21. Stress and health problems of being unemployed
Stress and health problems of being unemployed. Amongst studies of unemployed men, signs of depression, mental anxiety, and health problems are noticeably higher.
Increase in social problems. Areas of high unemployment (especially youth unemployment) tend to have more crime and vandalism. It can lead to alienation and difficulties in integrating young unemployed people into society.

22. Increased government borrowing
Increased government borrowing. Higher unemployment will cause a fall in tax revenue because there is fewer people paying income tax and also spending less (hence lower VAT). Also, the government will have to spend more on unemployment and related benefits. The government doesn’t just pay unemployment benefit, but a family who has unemployment will be more likely to receive housing benefit and income support.

23. Lower GDP for the economy
Lower GDP for the economy. High unemployment indicates the economy is operating below full capacity and is inefficient; this will lead to lower output and incomes. The unemployed are also unable to purchase as many goods, so will contribute to lower spending and lower output. A rise in unemployment can cause a negative multiplier effect.
Political instability. The period of mass unemployment in the 1930s led to social unrest. In Germany, an unemployment rate of 6 million was an important factor in the rise of Hitler and the Nazi party.

24. Benefits of unemployment
The primary benefit of unemployment is that people are available for hire, without being headhunted away from their existing employers. This permits new and old businesses to take on staff.
Unemployment is argued to be "beneficial" to the people who are not unemployed in the sense that it averts inflation
Full employment cannot be achieved because workers would shirk (avoid working, be lazy) if they were not threatened with the possibility of unemployment. 

25. Thank you for attention!