1. Unemployment & Business Cycle

2. Business Cycle Irregularities of Investment Change in productivity
Causes
Irregularities of Investment
Change in productivity
Changes in total spending
Durable goods are most susceptible to affects of business cycle. Why?

3. GDP and Business Cycle

5. Unemployment Labor Force Total U.S. population split into 4 groups
Under 16/ institutionalized
74.7 mil
Labor Force
People who are able and willing to work
About 50% of population
Total U.S. population split into 4 groups
Under 16 or institutionalized
“Not in labor force”
Discouraged workers
College students, homemakers, retirees
Employed
Work at least 1 hr in 2 weeks
Unemployed
Not worked in past 2wks-12 months
“Not in labor force”
71.4 mil
Total Population: Million
Employed
134.2 mil
Unemployed 8.3 mil

6. Current Unemployment Data
Unemployment Rate (u%)= 9% (bls.gov), 9.8% (gallup poll)
Not in Labor Force: +3%
Discouraged workers: +50%

7. Types of Unemployment Frictional
“Between jobs”
Voluntary move or fired/laid off
Changes from month-month are inevitable
Frictional—market does not operate perfectly

8. Types. . . Seasonal Structural
Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc.
Structural
Lack of skills or decline in industry
i.e. High School drop-out, typewriter repairman
Think “Creative Destruction”
Geographical
Migration of industry
Overseas, urban to suburban

10. Types. . . Cyclical Higher unemployment from decline in spending
Recessionary phase
Most serious problem

12. Full Employment No Cyclical Unemployment
Level of unemployment when economy is at full potential
Best known as: Natural Rate of Unemployment (NRU)
Approx. 4-5%

13. Why Unemployment is bad
Okun’s Law: (Arthur Okun)
Every 1% increase in u% causes 2% decrease in GDPr

14. UR Practice Determine which of the following are unemployed.
If unemployed, then determine the type of unemployment.
If not unemployed, then write down ‘not in labor force.’
Arvod cannot find work as a mall Santa in January.
Beulah leaves her job to become a stay at home mom.
Grover is laid off of work when the economy experiences a recession.
Tuabulu dropped out of his G.E.D. program and has difficulty finding work.
Boris, the human calculator, is replaced by the TI-83.
Nimrod leaves his job as a teacher to look for work in the fast food industry.
Queen Oli-go-poly graduates from college and begins looking for work.
Kimple has difficulty finding a job as a life guard after Labor Day.
Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He has difficulty finding a girlfriend.
Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.