1. UNEMPLOYMENT

2. Frictional-unemployment that occurs when people take time to find a job
Seasonal- unemployment occurring as a result of harvest schedules or when industries shut down for the season

3. Structural- unemployment that occurs when workers’ skills don’t match the jobs that are available
Changes in consumer demand
Discovery of new resources
Lack of education
Development of new technology
Globalization
Cyclical- rises during economic downturns and falls when economy improves

4. 3 Types of Unemployment

5. “No Job” Frictional – “temporary”, “transitional”, “short-term.”
(“between jobs” or “search” unemployment)
Examples:
People who get “fired” or “quit”
to look for a better one.
2. “Graduates” from high school or
college who are looking for a job.
3. “Seasonal” or weather-dependent jobs such as
“agricultural”, “construction”, “retail”, or “tourism”.
[lifeguards, resort workers, Santa’s, & migrant workers.]
Frictional unemployment signals that “new jobs” are available
and reflects “freedom of choice”.
These are qualified workers with “transferable” skills.
“No Job”

6. 2. Structural Unemployment
Structural – “technological” or “long term”.
Your skills don’t match up with what is needed,
You are replaced by a computer.
Automation may result in job losses.
Consumer taste may make a good “obsolete”.
The auto reduced the need for carriage makers.
Farm machinery reduced the need for farm laborers.
“These jobs do not come back.”
“Non-transferable skills” – choice is
prolonged unemployment or retraining.

7. 3. Cyclical Unemployment
Unemployment caused by economic downturns
Economy….we are in recession, people get laid
off”
“Durable goods jobs” are impacted the most.
These can be postponed because they can be repaired.
“Cyclical unemployment” is “real unemployment.”
“These jobs do come back.”

8. Unemployment 1900-1990 1950-59 average = 4.39% 1960-69 average = 4.65%

9. Natural Rate of Unemployment
4-6%

10. Measuring Unemployment
Labor force- civilians over 16 who have a job or actively looking for employment
Unemployment rate - % of nation’s labor force that’s unemployed
(# of people unemployed / # of people in the labor force) *100

11. 7.6/149.3 x 100 = Unemployment Rate of 5.1%
Under 16
and/or
Institutionalized
(70.5 Million)
Not in
Labor Force
(76.8 Million)
Total Population (297 Million)
Employed
(141.7 Million)
Labor
Force
(149.3 Million)
Unemployed 7.6 mil.

12. Effects of terrorism- slows down the economy
Full employment- level of employment reached when no cyclical unemployment exists
Underemployment- working at a job for which one is over-qualified or working part-time when full time is desired
PhD working at McD’s
Discouraged workers- a person who wants a job but has given up the search
Not factored into the unemployment rate
Effects of terrorism- slows down the economy
After 9/11/01, many jobs were lost in the air transportation industry

13. Unemployment and social problems
Each one-point increase in the unemployment rate for an extended period is associated with:
920 more suicides
650 more homicides
4000 more people admitted to state mental institutions
3300 more people sent to state prisons
37,000 more deaths
increases in domestic violence and homelessness

17. Survey on Unemployment
BLS (Bureau of Labor statistics)
calls 60,000 households every month.
[Current Population Survey]
They ask three questions:
Are you working? If the answer is “yes”,
you are member of the labor force. But,
if the answer is no, you get a 2nd question.
2. Did you work at all this month-even 1 day?
If “yes”, you are a member of the LF. But,
if the answer is no, you get a 3rd question.
3. Did you look for work during the last month?
[agency, resume, interview] A “yes” counts you as
part of the LF. A “no” means you are not counted.
You are a “discouraged worker.” The labor force
consists of the employed and unemployed.

18. Unemployment When It Was 4.5% Demographics of Unemployment
27.6%
12.5%
8.9%
8.9%
7.2%
7.1%
3.2%
3.4%

19. 1982 9.7% Unemployment Unemployment At 9.7% 48.0% 20.4% 18.9% 18.4%
27.6%
20.4%
18.9%
18.4%
15.2%
15.0%
12.5%
8.8%
8.9%
8.9%
8.3%
7.2%
7.1%
3.2%
3.4%

20. The More You Learn, The More You Earn
1998 Overall Unemployment Rate = 4.4%
[Unemployment Rate & Median Earnings by Education]
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000 8% 7% 6% 5% 4% 3% 2% 1%
7.1%
$19K
Less
Than
High
School
Diploma
Median Earnings
Unemployment Rate
4.1%
$28K
High
School
Grad
3.2%
$31K
Some
College
Grad
2.5%
$33K
Associates
Degree
Advanced
Degree
1.9%
$51K
College
1.6%
$60K
Master’s
1.3%
$75K

21. An "acceptable" level of unemployment means that the government economist to whom it is acceptable still has a job.

22. INFLATION Definition- general increase in prices
Purchasing power- ability to purchase goods and services
1908
1955
2001
Cost
$850
$3,030
$19,075
Hours Worked
4,696
1,638
1,346

23. Price index- measurement that shows how the average price of a standard group of goods changes over time
Compare earlier prices of the same goods to see how much prices have changed over time
Consumer Price Index- determined by measuring the price of a standard group of goods meant to represent the market basket of a typical urban consumer
Market basket- representative collection of goods and services (updated every 10 years)
Ex. food and drinks, housing, transportation, entertainment

24. Hyperinflation- inflation that’s out of control
Inflation rate- the percentage rate of the changes in the price level over time
(CPI Year 2 – CPI Year 1) / CPI Year 1 = ? x 100= inflation rate for Year 1
Hyperinflation- inflation that’s out of control

25. Causes
Demand-pull theory- inflation occurs when demand for goods and services exceeds existing supplies
Too many dollars chasing too few goods
Cost-push theory- inflation occurs when producers raise prices in order to meet increased costs
Increase in production costs increase in sale price for final product