Chapter 29
!
Unemployment
Key Terms
labor force	

unemployment rate	

labor-force participation rate	

natural rate of unemployment	

cyclical unemp...
Unemployment
How is it measured?	

Who measures it?
Central Department of Statistics and
Information	

!
www.cdsi.gov.sa
Total Population	

	

 Not Adult Population	

	

 Adult Population 15+	

	

 	

 Not in Labor Force	

	

 	

 Labor Force	...
Population30
Saudis20
Adult Saudis	

15+
14
Labor Force5.3
Employed
4.7
Labor Force	

Participation Rate
Labor Force÷ Adul...
Employed
paid employees	

work in own business	

unpaid workers in family business	

full-time and part-time	

jobs but te...
Unemployed
not employed	

available	

tried to find a job in the last four
weeks	

waiting to be recalled from layoff
Discouraged
Workers
People who would like
to work but have given
up looking for a job
Not in Labor Force
not employed or unemployed	

discouraged workers	

full-time student	

homemaker	

retiree
Unemployment Rate
The percentage of the
labor force that is
unemployed
Adult Population
Population age 15
and older
Labor-Force
Participation Rate
The percentage of the
adult population (15+)
that is in the labor force
Employed 4,717,127
Unemployed 622,533
Labor Force	

= Employed + Unemployed
5,339,660
Unemployment Rate	

= Unemployed ÷ L...
Saudi Adult Population 15+
14 million
Not in Labor Force
Unemployed
EmployedLabor Force	

Unemployed + Employed	

38%
62%
Employment Analysis Male Female Total
Employed 3,989,632 727,495 4,717,127
Unemployed 261,392 361,141 622,533
Labor Force ...
Employment
Analysis
Saudi Non-Saudi Total
Employed 4,717,127 6,011,996 10,729,123
Unemployed 622,533 10,114 632,647
Labor ...
Problems
Overstate - Above actual	

Cash workers	

!
Understate - Below actual	

Discouraged workers
Country	

Comparison
Saudi U.S China
Unemployment Rate 11.7% 7.9% 4.1%
Participation Rate 38.0% 63.3% 74.2%
Natural Rate of
Unemployment
The normal rate of
unemployment around
which the unemployment
rate fluctuates
Cyclical
Unemployment
The deviation of
unemployment from its
natural rate
Unemployment
Frictional	

Seasonal	

Structural	

!
Frictional
Time to find a new job	

!
Seasonal
Demand changes with
the season	

!
Structural
Too many workers	

!
Change in demand for
skills
Structural
Creative Destruction	

!
10% aYear
Unemployment
Insurance
Government program to
provide income when
workers become
unemployed
Unemployment
Insurance
Unintended Consequence	

Moral Hazard	

May prolong unemployment
Why are wages too
high?
Minimum wage laws	

Unions	

Efficiency Wages	

!
Minimum Wage Laws
Government sets a
minimum wage that can
legally be paid
0
1,000
2,000
3,000
4,000
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium
Wage	

30 workers	

30 jobs	

no
unem...
Efficiency Wages
Higher wages make
more productive
employees
Efficiency Wages
Employee Wage Pizzas Productivity	

Wage per Pizza
Ali 100 5 20.0
Abdullah 200 12 16.7
Efficiency Wages
More Healthy	

Lower Turnover	

Higher Quality	

More Effort
Eco 202 ch 29 unemployment
Eco 202 ch 29 unemployment
Eco 202 ch 29 unemployment
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Eco 202 ch 29 unemployment

  1. 1. Chapter 29 ! Unemployment
  2. 2. Key Terms labor force unemployment rate labor-force participation rate natural rate of unemployment cyclical unemployment discouraged workers frictional unemployment structural unemployment job search unemployment insurance union collective bargaining strike efficiency wages
  3. 3. Unemployment How is it measured? Who measures it? Central Department of Statistics and Information ! www.cdsi.gov.sa
  4. 4. Total Population Not Adult Population Adult Population 15+ Not in Labor Force Labor Force Employed Unemployed
  5. 5. Population30 Saudis20 Adult Saudis 15+ 14 Labor Force5.3 Employed 4.7 Labor Force Participation Rate Labor Force÷ Adult Saudis 5.3 ÷ 14 = 37.9% Unemployment Rate Unemployed ÷ Labor Force 0.6 ÷ 5.3 = 11.7% Unemployed 0.6 0.6
  6. 6. Employed paid employees work in own business unpaid workers in family business full-time and part-time jobs but temporary absence
  7. 7. Unemployed not employed available tried to find a job in the last four weeks waiting to be recalled from layoff
  8. 8. Discouraged Workers People who would like to work but have given up looking for a job
  9. 9. Not in Labor Force not employed or unemployed discouraged workers full-time student homemaker retiree
  10. 10. Unemployment Rate The percentage of the labor force that is unemployed
  11. 11. Adult Population Population age 15 and older
  12. 12. Labor-Force Participation Rate The percentage of the adult population (15+) that is in the labor force
  13. 13. Employed 4,717,127 Unemployed 622,533 Labor Force = Employed + Unemployed 5,339,660 Unemployment Rate = Unemployed ÷ Labor Force 11.7% Not in Labor Force 8,660,340 Adult Population Age 15+ = Labor Force + Not in Labor Force 14,000,000 Participation Rate = Labor Force ÷ Adult Population 38% Source: General Statistics Department and Information Saudi Labor Force
  14. 14. Saudi Adult Population 15+ 14 million Not in Labor Force Unemployed EmployedLabor Force Unemployed + Employed 38% 62%
  15. 15. Employment Analysis Male Female Total Employed 3,989,632 727,495 4,717,127 Unemployed 261,392 361,141 622,533 Labor Force 4,251,024 1,088,636 5,339,660 Unemployment Rate 6.1% 33.2% 11.7% Adult Population 7,000,000 7,000,000 14,000,000 Participation Rate 61% 16% 38%
  16. 16. Employment Analysis Saudi Non-Saudi Total Employed 4,717,127 6,011,996 10,729,123 Unemployed 622,533 10,114 632,647 Labor Force 5,339,660 6,022,110 11,361,770 Unemployment Rate 11.7% 0.2% 5.6%
  17. 17. Problems Overstate - Above actual Cash workers ! Understate - Below actual Discouraged workers
  18. 18. Country Comparison Saudi U.S China Unemployment Rate 11.7% 7.9% 4.1% Participation Rate 38.0% 63.3% 74.2%
  19. 19. Natural Rate of Unemployment The normal rate of unemployment around which the unemployment rate fluctuates
  20. 20. Cyclical Unemployment The deviation of unemployment from its natural rate
  21. 21. Unemployment Frictional Seasonal Structural !
  22. 22. Frictional Time to find a new job !
  23. 23. Seasonal Demand changes with the season !
  24. 24. Structural Too many workers ! Change in demand for skills
  25. 25. Structural Creative Destruction ! 10% aYear
  26. 26. Unemployment Insurance Government program to provide income when workers become unemployed
  27. 27. Unemployment Insurance Unintended Consequence Moral Hazard May prolong unemployment
  28. 28. Why are wages too high? Minimum wage laws Unions Efficiency Wages !
  29. 29. Minimum Wage Laws Government sets a minimum wage that can legally be paid
  30. 30. 0 1,000 2,000 3,000 4,000 0 10 20 30 40 50 60 Supply Demand Wage Workers Equilibrium Wage 30 workers 30 jobs no unemployment Minimum Wage 40 workers 20 jobs 20 unemployed workers Minimum Wage 20 workers get a raise 10 workers lose job 10 new unemployed workers Minimum Wage
  31. 31. Efficiency Wages Higher wages make more productive employees
  32. 32. Efficiency Wages Employee Wage Pizzas Productivity Wage per Pizza Ali 100 5 20.0 Abdullah 200 12 16.7
  33. 33. Efficiency Wages More Healthy Lower Turnover Higher Quality More Effort
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