1. Aim: To what extent can unemployment be resolved by addressing expansions and contractions in GDP? Do Now: What is the nature of the relationship between unemployment and GDP?

2. Types of Unemployment Structural Unemployment – mismatch of jobs and workers due to the lack of skills or simply the wrong area desired for work. – advances in technology and changes in market conditions often turn many skills obsolete; this typically increases the unemployment rate Frictional Unemployment – temporary transitions made by workers and employers – It is caused because unemployed workers may not always take the first job offer they receive because of the wages and necessary skills Cyclical Unemployment – attributed to economic contraction is called cyclical unemployment – an economy that is in a recession faces higher levels of unemployment – more unemployed workers than job openings due to the breakdown of the economy

3. Unemployment and GDP Rise in unemployment is indicative of a fall in GDP GDP is inversely related to Unemployment Natural Rate of Unemployment – What percentage would constitute a natural rate of unemployment? – Where on the PPC would the natural rate of unemployment be expressed? – What two types of unemployment combined make up the natural rate of unemployment?

4. Employment Employment – All people in the economy currently working Unemployment Unemployment – All people in the economy not working, but actively seeking employment Labor Force Labor Force – Employed + Unemployed Unemployment Rate Unemployment Rate – % of the Labor Force that is unemployed Changes in all of the following would be represented on the PPC as either a point or a curve shift

5. Characteristics of Labor Force Age Groups Skilled vs Unskilled Level of Education Experience Level Single vs Married

6. Defining and Measuring Unemployment The most frequently discussed symptom of a recession is unemployment. An employed person is any person 16 years old or older 1.who works for pay, either for someone else or in his or her own business for 1 or more hours per week, 2.who works without pay for 15 or more hours per week in a family enterprise, or 3.who has a job but has been temporarily absent, with our without pay.

7. Defining and Measuring Unemployment An unemployed person is a person 16 years old or older who: 1. is not working, 2.is available for work, and 3.has made specific efforts to find work during the previous 4 weeks. A person who is not looking for work, either because he or she does not want a job or has given up looking, is not in the labor force.

8. Defining and Measuring Unemployment

9. Employed, Unemployed, and the Labor Force, 1953-1999 Employed, Unemployed, and the Labor Force, 1953–1999 (1)(2)(3)(4)(5)(6) POPULATION 16 YEARS OLD OR OVER (MILLIONS) LABOR FORCE (MILLIONS) EMPLOYED (MILLIONS) UNEMPLOYED (MILLIONS) LABOR-FORCE PARTICIPATION RATE UNEMPLOYMENT RATE 1953107.163.061.21.858.92.9 1960117.269.665.83.959.45.5 1970137.182.878.74.160.44.9 1980167.7106.999.37.663.87.1 1982172.3110.299.510.764.09.7 1990189.2125.8118.87.066.55.6 1999207.8139.4133.55.967.14.2 Note: Figures are civilian only (military excluded). Source: Economic Report of the President, 2000, p. 346.

10. Discouraged-Worker Effects The discouraged-worker effect lowers the unemployment rate. Discouraged workers are people who want to work but cannot find jobs, grow discouraged, and stop looking for work, thus dropping out of the ranks of the unemployed and the labor force.

11. Role of Government in Employment produce Governments produce government services: national defense, law enforcement, education, physical infrastructure using tax revenues and receipts from sales. regulate Governments regulate economic activity: environmental protection, monopolies, public disclosure rules. redistribute Governments redistribute income through tax and transfer systems.

12. What are Tax and Transfer Systems? A tax and transfer system collects tax revenues from one group of citizens and redistributes the revenue as cash, goods, or services to another group of citizens. Tax and transfer systems do not involve production of government services (public goods).

13. Sample Question If a country has a working-age population of 200 million, 135 million people with jobs, 10 million people who were looking for a job but have given up, and 5 million people unemployed and seeking employment, then its labor force is: A. 150 million. B. 145 million. C. 140 million. D. 135 million. E. 200 million

14. Sample Question Donna was laid off by her employer at the beginning of 2008. She looked for a job for three months, but could not find anything suitable. She then decided to volunteer for a soup kitchen. Donna is considered to be A. unemployed. B. underemployed. C. a discouraged worker. D. a part time worker. E. employed.