2. History of Unemployment In the United States
Although the unemployment rate in the United States drifted upward between 1960 and 1990, the economic expansion of the 1990s reduced the unemployment rate substantially.
Unemployment rose to 9.6 percent by 2010 following deterioration of economic conditions in 2008
Recent unemployment rates in the U.S. have exceeded unemployment rates in Germany and France

3. Unemployment in the U.S. from 1900 to 2010

4. Unemployment Rates by Education Attainment, 1970-2010

5. Unemployment Rates by Education Attainment

6. Unemployment Rates by Gender

7. Unemployment rate in Taiwan
by gender

8. Frictional Unemployment
Frictional unemployment arises when workers and firms need time to locate each other and to digest information about the potential job match.
Even a well-functioning competitive economy experiences frictional unemployment, because some workers will unavoidably be “between” jobs.

9. Seasonal Unemployment
Occurs when people are unemployed at certain times of the year, because they work in industries where they are not needed all year round.
Examples of industries where demand, production and employment are seasonal include tourism and leisure, farming, construction and retailing.

10. Seasonal Unemployment

11. Structural Unemployment
Structural unemployment arises when there is an imbalance between the supply of workers and the demand for workers or when unemployment arises because of a mismatch between worker skills and the skills needed by firms.
Structural unemployment is the most concerning type of unemployment for an economy as the skills embedded in labor are no longer being put to productive use.

12. Cyclical Unemployment
A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, cyclical unemployment will rise.
Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work.

13. The Rate of Unemployment
The steady-state rate of unemployment depends on the transition probabilities among employment, unemployment, and the nonmarket sector.
Let l = the fraction of employed workers who lose their jobs and become unemployed
Let h = the fraction of unemployed workers who find work and get hired
In the steady state lE = hU, and since the Labor Force is LF = E + U, then
The Unemployment Rate, UR = U/LF = l/(l + h)

14. Unemployed Persons by Reason for Unemployment, 1967-2010

15. Unemployment Duration
Although most spells of unemployment do not last very long, most weeks of unemployment can be attributed to workers who are in very long spells.

16. Unemployed Persons by Duration of Unemployment, 1948-2010

17. Trends in Alternative Measures of the Unemployment Rate, 1994-2007

18. Flow and stock of UE We have the above in the steady state
l: fraction of employed workers who lose their jobs and become unemployed
h: fraction of unemployed workers who find jobs

19. Flows Between Employment and Unemployment
Employed
(E workers)
Unemployed
(U Workers)
Job Losers (  E)
Job Finders (h  U)
Suppose a person is either working or unemployed. At any point in time, some workers lose their jobs and unemployed workers find jobs. If the probability of losing a job equals , there are   E job losers. If the probability of finding a job equals h, there are h  U job finders.

20. Dynamic Flows in the U.S. Labor Market
Employed:
130.0 million
Unemployed:
7.4 million
Out of Labor Force:
69.3 million
1.8 million
2.0 million
1.6 million
3.6 million
3.4 million

21. Job Search
The asking wage makes the worker indifferent between continuing his search activities and accepting the job offer at hand.
The idea is analogous to reservation wage
An increase in the benefits from search raises the asking wage and lengthens the duration of the unemployment spell.
An increase in search costs reduces the asking wage and shortens the duration of the unemployment spell.

22. The Wage Offer Distribution$5 $8
$22
$25
Frequency
Wage
The wage offer distribution gives the frequency distribution of potential job offers. A given worker can get a job paying anywhere from $5 to $25 per hour.

23. Determination of the Asking Wage
The marginal revenue curve gives the gain from an additional search. It is downward sloping because the better the offer at hand, the less there is to gain from an additional search. The marginal cost curve gives the cost of an additional search. It is upward sloping because the better the job offer at hand, the greater the opportunity cost of an additional search. The asking wage equates the marginal revenue and the marginal cost of search. $5
$25
Wage Offer
at Hand
Dollars w MC MR
$10
$20

24. Costs and benefits of search
MC is increasing because it takes more effort to search as duration lasts.
MB is decreasing because reward from further searching is decreasing given the existing wage

25. Discount Rates, Unemployment Insurance, and the Asking Wage
Dollars
w0
w1 MC
MR0
MR1
MC0
MC1 MR
(a) Increase in discount rates
(b) Increase in unemployment benefits

26. Unemployment Insurance
Unemployment benefits are typically paid up to 26 weeks of unemployment, but this length is frequently extended by Congress during recessions.
The level of unemployment benefits depends on previous earnings. The replacement ratio averages about 60 percent for low-wage workers and about 25 percent for high-wage workers.
Unemployment insurance lengthens the duration of unemployment spells and increases the probability that workers are laid off temporarily.

27. The Probability of Finding a New Job and UI Benefits

28. Could there be long-run effects from graduating during a recession?
In a competitive market, shouldn’t matter
Initial conditions (e.g. lower labour demand) may increase search time and lower initial reservation wage
But once recession over, should ‘bounce-back’
Workers with equal productivity should be paid same

29. Possible reasons why initial job outcome may affect longer run outcomes
Jobs harder to get during recessions may offer more opportunities for human capital accumulation – productivity grows faster
Jobs harder to get during recessions may make search for higher paying jobs easier
Firms may use initial job as ‘signal’ for a workers’ productivity (stigma model)

30. Let’s look at the data what happens, on average, when university students graduate during a recession?
University Student Information System (USIS) tracks university enrollment status and graduate status for universities in Canada (1976 – 2000)
USIS data matched to administrative records tracking earnings data from

31. Data matched to youth unemployment rate conditions by province

32. Regression set up

33. Implied log wage differential from 5% point lower youth unemployment rate at time of finishing university (by years since finishing)

34. Another way of looking at it
Categorize 1982 – 1999 university leavers by the provincial unemployment rate they faced, from lowest to highest
Group into quintiles (5 groups)
Estimate wage profiles for each group

35. 1st, 3rd, and 5th quintile groups slowly converge in wages over 15 years

36. Wages 10 – 20% lower in the first 5 years out

37. Tentative conclusions
Economic conditions at time of labour force entry seem to have persistent effects on wages
On average, graduates in a recession experience wages percent lower initially and about 3-5% lower even 15 years later
Over this time, graduates during a recession are more likely to move and to change firm and industry