Unemployment & Business Cycle

Business CycleCauses

1. Irregularities of Investment

2. Change in productivity3. Changes in total

spending

• Durable goods are most susceptible to affects of business cycle. Why?

GDP and Business Cycle

Unemployment• Labor Force

▫ People who are able and willing to work

▫ About 50% of population

• Total U.S. population split into 4 groups1.Under 16 or

institutionalized2.“Not in labor force”

Discouraged workers College students,

homemakers, retirees

3.Employed Work at least 1 hr in 2 weeks

4.Unemployed Not worked in past 2wks-12

months

Under 16/ institutionalized74.7 mil

“Not in labor force”71.4 mil

Employed

134.2 mil

Unemployed 8.3 mil

Tota

l Pop

ula

tion

: 288.6

Mil

lion

Current Unemployment Data•Unemployment Rate (u%)= 9% (bls.gov),

9.8% (gallup poll)•Not in Labor Force: +3%

▫Discouraged workers: +50%

Types of Unemployment

1. Frictional▫“Between jobs”▫Voluntary move or

fired/laid off▫Changes from

month-month are inevitable

•Frictional—market does not operate perfectly

Types. . . 2. Seasonal

▫ Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc.

3. Structural▫ Lack of skills or decline

in industry i.e. High School drop-

out, typewriter repairman

Think “Creative Destruction”

▫ Geographical Migration of industry Overseas, urban to

suburban

Types. . . 4. Cyclical

▫ Higher unemployment from decline in spending

▫ Recessionary phase▫ Most serious problem

Full Employment

• No Cyclical Unemployment

• Level of unemployment when economy is at full potential

• Best known as: Natural Rate of Unemployment (NRU)

• Approx. 4-5%

Why Unemployment is badOkun’s Law: (Arthur

Okun)▫ Every 1% increase in

u% causes 2% decrease in GDPr

UR PracticeDetermine which of the following are unemployed.

• If unemployed, then determine the type of unemployment. • If not unemployed, then write down ‘not in labor force.’1. Arvod cannot find work as a mall Santa in January.

2. Beulah leaves her job to become a stay at home mom.

3. Grover is laid off of work when the economy experiences a recession.

4. Tuabulu dropped out of his G.E.D. program and has difficulty finding work.

5. Boris, the human calculator, is replaced by the TI-83.

6. Nimrod leaves his job as a teacher to look for work in the fast food industry.

7. Queen Oli-go-poly graduates from college and begins looking for work.

8. Kimple has difficulty finding a job as a life guard after Labor Day.

9. Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He

has difficulty finding a girlfriend.

10. Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.