Unemployment (1)

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Unemployment (1)

  1. 1. Unemployment and Its Natural Rate
  2. 2. How Is Unemployment Measured? – The working-age population is divided into two groups: – 1. People in the labor force – 2. People not in the labor force – The labor force is the sum of employed and unemployed workers
  3. 3. – To be counted as unemployed, a person must be in one of the following three categories: – 1. Without work but has made specific efforts to find a job within the previous four weeks – 2. Waiting to be called back to a job from which he or she has been laid off – 3. Waiting to start a new job within 30 days
  4. 4. • Three Labor Market Indicators The unemployment rate  The employment-to-population ratio  The labor force participation rate 
  5. 5. How Is Unemployment Measured? • The labor-force participation rate is the percentage of the adult population that is in the labor force. – Labor-force Participation Rate= (Labor Force/Adult Population)*100 • The unemployment rate is calculated as the percentage of the labor force that is unemployed. – Unemployment Rate= (Unemployed/Labor Force)*100 The employment ratio is the employed fraction of the adult population – employment ratio= (employed/adult population)
  6. 6. Employed, Unemployed, Not in the Labor Force, Labor Force • Employed: A person is considered employed if he or she has spent most of the previous week working at a paid job. • Unemployed: A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job. • Not in the Labor Force: A person who fits neither of these categories, such as a full-time student, homemaker, or retiree, is not in the labor force. • Labor Force – The labor force is the total number of workers and the BLS defines the it as the sum of the employed and the unemployed.
  7. 7. Employed Labor Force Adult Population ( Unemployed) Not in labor force Copyright©2003 Southwestern/Thomson Learning
  8. 8. Issues in Measuring Unemployment • It is difficult to distinguish between a person who is unemployed and a person who is not in the labor force. – Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, don’t show up in unemployment statistics. – Other people may claim to be unemployed in order to receive financial assistance, even though they aren’t looking for work.
  9. 9. Why does unemployment occur? • In an ideal labor market, wages would adjust to balance the supply and demand for labor, ensuring that all workers would be fully employed. • Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suit their tastes and skills. • Structural unemployment is the unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.
  10. 10. Frictional Unemployment and Job Search • Job search – the process by which workers find appropriate jobs given their tastes and skills. – results from the fact that it takes time for qualified individuals to be matched with appropriate jobs.
  11. 11. Structural Unemployment • Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded. • Structural unemployment is often thought to explain longer spells of unemployment.
  12. 12. IDENTIFYING UNEMPLOYMENT • Long-run versus Short-run Unemployment: – Long-run: The natural rate of unemployment – Short-run: The cyclical rate of unemployment • Natural Rate of Unemployment – The amount of unemployment that the economy normally experiences and does not go away on its own even in the long run. – or – The unemployment rate at full employment is called the natural unemployment rate.
  13. 13. • Cyclical Unemployment – Associated with with short-term ups and downs of the business cycle and refers to the year-to-year fluctuations in unemployment around its natural rate. or – Cyclical unemployment is the fluctuating unemployment over the business cycle • Full employment occurs when there is no cyclical unemployment or, equivalently, when all unemployment is frictional and structural

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