Unemployment Population

Number of people in a country Labor force

Number of people in a country that are classified as either employed or unemployed Labor Force Participation Rate

% of working age population in the labor force (U.S. is approx 66%)

Employed People 16 years and older that have a job. It doesn’t matter if it’s part-time or full-time, as long as they work at least 1 hour

every 2 weeks Unemployed

People 16 years and older that don’t have a job, but have actively searched for a job in the last 2 weeks

Unemployment rate = # of unemployed / # of people in labor force Not in Labor Force

Kids, military personnel, retired people, stay at home Moms and Dads, full-time students, your 40 year old uncle who sleeps on the couch all day, most of the homeless.

Total Population age 16 and over

Not in Labor ForceArmed forces

Household workersStudentsRetirees

Disabled personsInstitutionalized

Discouraged workers

Civilian labor force

EmployedEmployees

Self-employedUnemployedNew entrantsRe-entrantsLost last jobQuit last job

Laid off

Who bears the burden of Unemployment?

Society: Lost Output Unequal Burdens

Teenagers more than older workers Minority teenagers more than others Blue collar more than white collar (traditionally)

Last hired/first fired

Frictional – “temporary”, “transitional”, “short-term.” (“between jobs” or “search” unemployment)

1.People who get “fired” or “quit” to look for a better one. [30 mil. a yr]

[6 million U.S. workers get laid off each year]2. “Graduates” from high school or college who are looking for a job.3. “Seasonal” or weather-dependent jobs such as “agricultural”, “construction”, “retail”, or “tourism”. [lifeguards, resort workers, Santa’s, & migrant workers.]Frictional unemployment signals that “new jobs” are available and reflect of “freedom of choice”.

These are qualified workers with “transferable” skills.

Why Some Frictional Unemployment Is Inevitable

Search unemployment is inevitable because the economy is always changing.

Changes in the composition of demand among industries or regions are called sectoral shifts.

It takes time for workers to search for and find jobs in new sectors.

Frictional unemployment often occurs because of a change in the demand for labor among different firms.1.When workers decide to stop buying a good produced by Firm A and instead start buying a good produced by Firm B, some workers at Firm A will likely lose their jobs.

2.New jobs will be created at Firm B, but it will take some time to move the displaced workers from Firm A to these openings.

3.The result of transition is temporary unemployment.

4.This can occur across industries as well.

2. Structural UnemploymentStructural – “technological” or “long term”. There are basic changes in the “structure” of the labor force which make

certain “skills obsolete”. [also caused by“international competition”]

• Automation may result in job losses (a robot took your job).The auto reduced the need for carriage makers.Farm machinery reduced the need for farm laborers.

• Consumer taste may make a good “obsolete”.• These jobs do not come back.• Non-transferable skills– choice is prolonged unemployment or

retraining.

“Creative destruction” means as jobs are created, other jobs are lost. Jobs of the future destroy jobs oftoday.

*Frictional and Structural make up the natural rate of unemployment or full employment.

Natural Rate of Unemployment At NRU the economy is said to be producing at its

potential output. NRU occurs when the number of job seekers

equals the number of job vacancies.

Changes… Labor force characteristics Labor market institutions ( unions, temp agencies,

technology) Gov’t policies

Unemployment Rate = Unemployment/L.Force X 100

6

5

GDP Gap (Okun’s Law)Unemployment Rate over 6% x 2

2

4 billion

4

20 billion

8

8 billion

a. Glass blowers were replaced by bottle-making machines.

b. Oil-field workers were displaced when oil demand fell in 1980s.

c. Airline mergers displaced many airline workers in 1980s.

d. Foreign competition has led to downsizing in U.S. industry and loss of jobs.

e. Military cutbacks have led to displacement of workers in military-related industries.

The difference between the Two

Frictionally unemployed have able skills Usually short term

Structurally unemployed need to be retrained in skills that are needed Longer term

Public Policy and Job Search Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded.

Structural unemployment is often thought to explain longer spells of unemployment.

Structural Unemployment Minimum-wage laws Unions Efficiency wages

Minimum-Wage Laws

When the minimum wage is set above the level that balances supply and demand, it creates unemployment.

Unemployment from a Wage Above the Equilibrium Level...

WE

Quantity of LaborLE0

Labordemand

Wage

Surplus of labor = Unemployment

Minimum wage

LD LS

Laborsupply

Unions and Collective Bargaining

A union is a worker association that bargains with employers over wages and working conditions.

In the 1940s and 1950s, when unions were at their peak, about a third of the U.S. labor force was unionized.

A union is a type of cartel attempting to exert its market power.

Theory of Efficiency Wages

A firm may prefer higher than equilibrium wages for the following reasons: Worker Health: Better paid workers eat a better diet and thus are more productive.

Worker Turnover: A higher paid worker is less likely to look for another job.

3. Cyclical Unemployment

Cyclical – economic downturns in the business cycle.•Cyclical fluctuations caused by deficient AD•Durable goods jobs are impacted the most.•These can be postponed because they can be repaired.

•Cyclical unemployment is real unemployment.

These jobs do come back

Labor Force Participation Rate The labor force as a percent of the population

labor force x 100

population

If more people begin to search for jobs, what

happens to the labor force ___, the number of

unemployed ___, and the labor force participation rate ___?

Distortions of the Measurement: Discouraged workers --- out of work and have given up

looking for a job

unemployed? A part of the labor force??????? Part-time workers --- counted as if they are fully employed –

even if they would prefer full-time work. Some may be UNDEREMPLOYED --- engineer working as a cashier at a grocery store.

False information --- say you are looking for work but really are not

Marginally attached worker- would like to be employed and have looked for a job but aren’t currently looking for work

Overstate or Understate?

GDP Gap

Gap between potential output (YF) and actual output.

Amount of output lost due to cyclical unemployment.

PL

GDPR

LRAS

YF

AD1

SRAS

PL1

Y1

Full Employment vs. Recession

PL

GDPR

LRAS

YF

AD

SRAS

PL

___ output ___ employment ___ unemployment ___ PL

The average unemployment rate in France, Germany, & Italy and Canada remained high.

European labor markets are less flexible.