1. Unemployment Outline The labor force participation rate
The unemployment rate
Types of unemployment
The social and economic costs of unemployment

2. Unemployment

3. Labor force does not include
Discouraged Workers
People who are available and willing to work but have not made specific efforts to find a job within the previous four weeks.

6. The Changing Face of the Labor Market
Instructor Notes:
1) The upward trends in the labor force participation rate and the employment-to-population ratio are accounted for mainly by the increasing participation of women in the labor market.
2) The male labor force participation rate and employment-to-population ratio have decreased.

7. (end of May each year)

8. 23.5 million new jobs have been added in the U.S. since 1991

9. Employment statistics for the U.S., May 2000 (in thousands)
Thus, the unemployment rate is given by:
Source:

11. Unemployment rates in industrialized countries, May 2000
Source: The Economist

12. Unemployment by Reasons
Instructor Notes:
1) Everyone who is unemployed is either a job loser, a job leaver, or an entrant or reentrant into the labor force.
2) Most of the unemployment that exists results from job loss.
3) The number of job losers fluctuates more closely with the business cycle than do the numbers of job leavers and entrants and reentrants.
4) Entrants and reentrants are the second most commonly unemployed people.
5) Their number fluctuates with the business cycle because of discouraged workers.
6) Job leavers are the least common unemployed people.

13. Types of unemployment
Economists distinguish between four types of unemployment:
Frictional
Seasonal
Structural
Cyclical

14. I haven’t found a job yet, so I’m frictionally unemployed
Frictional unemployment
This type of unemployment is the (unavoidable) product of the movement of human resources between jobs, or into the labor force.
I haven’t found a job yet, so I’m frictionally unemployed
I’m a “techie” who is relocating to Dallas because my wife got transferred

15. Seasonal unemployment
Unemployment arising from the seasonal nature of some economic activities.
Construction workers in Minnesota unemployed in February.
Employees of ski resorts unemployed in July.

16. Self Service led to the demise of the gas station
Structural Unemployment
Self Service led to the demise of the gas station
attendant
This is unemployment arising from changes in the structure of output or methods of production.
Displacement of Delta farm workers as a result of the mechanization of agriculture.
Displacement of draftsmen due the the movement to computer aided design (CAD).
Displacement of auto workers due to car assembly by computer-guided robots.

17. Cyclical unemployment
I couldn’t find work in 1991, because hardly anyone was building a new home
Cyclical unemployment
This is unemployment due a general contraction in the level of business activity--that is, recession related unemployment
Auto and farm equipment workers laid off to to weak sales.
Workers in heavy machinery industries laid off because investment spending is soft.

18. Unemployment is a drag!
Unemployment causes stress on individuals and families.
Unemployment is correlated with rising incidence of spousal and child abuse, divorce, drug and alcohol use, and crime.
The purely economic cost of unemployment is lost physical output, as measured by the GDP Gap

19. GDP Gap GDP Gap = Potential GDP - Actual GDP,
where potential GDP is the the level of output the economy would achieve if the unemployment rate were equal to the Natural Rate of the NAIRU
NAIRU is an acronym for “non-accelerating inflation rate of unemployment.” It is the unemployment rate corresponding to zero cyclical unemployment
NAIRU is the “full-employment” unemployment rate.

20. The GDP Gap in 1983
Actual unemployment in was 9.6%. If you assume that the NAIRU was 6%, then we can use Okun’s law to estimate a GDP gap of $352 billion for 1983 (1987 dollars)
Okun’s law: each percentage point difference between the unemployment rate and the NAIRU converts to a 2.5 percent GDP gap.

21. Unemployment and Real GDP
Instructor Notes:
1) As real GDP fluctuates around potential GDP (part a), the unemployment rate fluctuates around the natural rate of unemployment (part b).
2) In the deep recession of 1982, unemployment reached almost 10 percent.
3) In the miler recession of , the unemployment rate peaked at less than 8 percent.
4) The natural rate of unemployment decreased during the 1980s and 1990s.