1. AP Economics Mr. Bernstein Module 13: The Causes and Categories of Unemployment February 6, 2015

2. AP Economics Mr. Bernstein The Causes and Categories of Unemployment Objectives - Understand each of the following: The three types of unemployment and their causes The factors that determine the natural rate of unemployment 2

3. AP Economics Mr. Bernstein Frictional Unemployment Millions of jobs are destroyed every month, and new ones are created Workers change jobs seeking better lifestyle or $$ There may be time lags between jobs 3

4. AP Economics Mr. Bernstein Structural Unemployment Arises from structural changes in labor market Demand for some skills declines Geographic distribution of jobs changes Mergers and/or foreign competition Characterized by persistent surplus of workers Minimum wage floors Labor unions Efficiency wages Side effects of public policy (ie unemployment insurance) 4

5. AP Economics Mr. Bernstein Structural Unemployment 5

6. AP Economics Mr. Bernstein Natural Rate of Unemployment Natural Unemployment = Frictional + Structural Unemployment Cyclical Unemployment are deviations from the natural rate due to business cycle Actual Unemployment = Natural Unemployment + Cyclical Unemployment 6

7. AP Economics Mr. Bernstein Changes in the Natural Rate of Unemployment Natural Rate in US is thought to be a bit <5% What changes Natural rate? Consider… Changes in Labor Force characteristics (ie age) Changes in Labor Market Institutions (ie role of unions or rise of efficient, online job search sites) Changes in government policies (ie subsidies, training programs) 7