07 Unemployment

pg212-241

Misconception - We should aim for zero unemployment.

What are the major reasons for unemployment?

  • Unemployment occurs when a worker who is not currently employed is searching for a job without success.
  • The unemployment rate is the percentage of the labor force that is unemployed.

Structural Unemployment

Structural unemployment is unemployment caused by changes in industrial makeup (structure) of the economy.

  • Creative Destruction - occurs when the introduction of new products and technologies leads to the end of other industries and jobs.

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  • An Evolving Economy

Figure 7.2
Over the past two centuries, jobs in the United States have evolved from being primarily agricultural to industrial (manufacturing) and then to service.

Fractional Unemployment

Fractional unemployment is unemployment caused by delays in matching available jobs and workers.

  • Information Availability
  • Government Policies
    • unemployment insurance and incentives, regulations on hiring and firing

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Cyclical Unemployment

Cyclical unemployment is unemployment caused by economic downturns.

The Natural Rate of Unemployment

The natural rate of unemployment is the typical unemployment rate that occurs when the economy is growing normally.

What can we learn from the unemployment rate?

The Unemployment Rate

unemploymentrate=u=numberunemployedlaborforce×100unemployment \: rate = u = \frac{number \: unemployed}{labor \: force} \times 100

Historical Unemployment Rates

Figure 7.5 Unemployment in the United States, December 2014
To compute the unemployment rate, we divide the work-eligible population between those are in the labor force and those who are not. To be counted in the labor force, a person must either have a job or be actively seeking job. The unemployment rate is the percentage of the labor force that is unemployed.

Work-Eligible Population(Civilian, Noninstitutionized, Age 16+)

  • Not in the labor force

    1. retirees
    2. students
    3. disabilities
    4. homestay parents
    5. discouraged workers

  • Labor Force

    1. Full-time Employed
    2. Part-time Employed
    3. Unemployed
Shortcomings of the Unemployment Rates

Other Labor Market Indicators

Labor Force Participation

Labor Force Participation Rate is the percentage of the work-eligible population that is in the labor force.

laborforceparticipationrate=laborforcework−eligiblepopulation×100labor \: force \: participation \: rate = \frac{labor \: force}{work-eligible population} \times 100

Gender and Race Labor Force Statistic

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