1. Unemployment
AP Macroeconomics

2. Who is in the Labor Force?
<16 yr old & institutionalized
“Not in labor force”
Not employed &
Not seeking employment
Labor Force
Able & willing to work
Comprised of employed and unemployed workers
Under 16
And/or
Institutionalized
(70.5 Million)
Not in the
Labor Force
(76.8 Million)
Total
Population
(296.6 Million)
2005
Employed
( Million)
Labor Force
(149.3 million)
Labor Force
Participation Rate
Unemployed
(7.6 million)

3. Labor Force Growth Consumption Goods (units per year)
Investment Goods (units per year) B O C A H G F D
Labor-force growth increases production possibilities

4. November 15, 2016.

5. November 15, 2016.

6. November 15, 2016.

7. The Unemployment Rate Percentage of the labor force unemployed:
Based on 2005 data, unemployment rate averaged:
Unemployment Rate =
unemployed
labor force
X 100
Unemployment Rate =
7,600,000
149,335,000
X 100
= 5.1%
Today’s rate: 4.9%

8. Determining Unemployment
Bureau of Labor Statistics (BLS):
Random survey of 60,000 homes
Who is working?
Unemployed and looking for work?
Not looking for work?
Uses information to determine unemployment rate for nation

9. November 14, 2016.

10. November 14, 2016.

11. November 15, 2016.

12. http://www. frbsf. org/publications/economics/letter/2005/el2005-15

13. Unemployment rates vary . . .
Unequal Burdens
White
Black
Hispanic
National
average
High school
dropouts
graduates
College
Master's
degree
Doctoral
3.2
3.7
5.9
3.5
5.4
5.3
16.7
11.4
Adult Males
Adult Females
Teenagers
24.7
4.0
6.4
2.7
1.8
1.6
0.9 40 36 32 28 24 20 16 12 8 4
. . . by race, sex, age
Unemployment rates vary . . .
. . . by education

14. Unemployment Next: types of unemployment
Unemployment Rates in Five Industrial Nations,
France
Italy
Unemployment Rate (percent)
Germany
U.S.
Japan
Next: types of unemployment
1995
2000
2005
Source: Bureau of Labor Statistics

15. Seasonal Unemployment
Seasonal unemployment is the unemployment due to seasonal changes in employment or labor supply.
At the end of each season, thousands of workers must go searching for new jobs, experiencing seasonal unemployment in the process.

16. Frictional Unemployment
Frictional unemployment is the brief periods of unemployment experienced by people moving between jobs or into the labor market.
Some desirable as move from low pay/productive to high pay/productive

17. Frictional Unemployment
Frictional unemployment differs from other unemployment in three ways:
There is an adequate demand for the labor of the frictionally unemployed.
The frictionally unemployed have the skills required for existing jobs.
The job-search period will be relatively short.

18. Equilibrium unemployment
ASL LF
Average (real) wage rate
a b We
ADL
Qe Q1
Number of workers

19. Structural Unemployment
Structural unemployment is the unemployment caused by a mismatch between the skills or location of job seekers and the requirements or location of jobs.
Periods between jobs are longer when the unemployed lack the skills that employers require.

20. Real Wage Unemployment
Real Wage Unemployment is a form of disequilibrium unemployment that occurs when real wages are forced above the market clearing level.
Traditionally, trade unions and wages councils are seen as the institutions causing this type of unemployment

21. Graphing the labor marketS
labor
Wage ($ per hour) W D
labor Q
Quantity of workers

23. Full Employment Frictional & structural unemployment are unavoidable
Full employment is when the economy is experiencing only frictional and structural unemployment
Natural rate of unemployment (NRU)
4.5%-5%
Reducing (proportion of younger workers, temp agencies, work requirements, growth of prison population)

24. Cyclical Unemployment
Cyclical unemployment is the unemployment attributable to the lack of job vacancies – i.e., to an inadequate level of aggregate demand.
Cyclical unemployment occurs when there are simply not enough jobs to go around.

25. Check for understanding!
A=frictional
B=structural
C=cyclical
Check for understanding!
A computer programmer is laid off because of a recession.
A literary editor leaves her job in New York to look for a new job in San Francisco.
An unemployed college graduate is looking for his first job.
Advances in technology make the assembly-line worker’s job obsolete.

26. Slumping sales lead to a cashier being laid off.
A=frictional
B=structural
C=cyclical
Slumping sales lead to a cashier being laid off.
An individual refuses to work for minimum wage.
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.
A skilled glass blower becomes unemployed when a new machine does her job faster.

27. Full employment LR 4.8%
November 14, 2016.

28. Discouraged Workers
A discouraged worker is an individual who is not actively seeking employment but would look for or accept a job if one were available.
Discourage workers are not counted as part of the unemployment problem after they give up looking for a job.
How do we calculate it the number of discouraged workers?

29. November 15, 2016.

30. Underemployment: Some people are forced to take any job available
Underemployment exists when people seeking full-time paid employment work only part time or are employed at jobs below their capability.
These people are excluded from the count of unemployed, but not from the condition of underemployment.

31. The Phantom Unemployed
Some of the people who are counted as unemployed probably shouldn’t be.
Many people report that they are actively seeking work when they have little interest in finding a job.
Public policy encourages this behavior by requiring most welfare and unemployment benefit receivers to provide evidence that they are looking for work.

32. November 14, 2016.

33. GDP Gap GDP Gap: difference between actual and potential GDP
Okun’s Law: 1% actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2% occurs