6.00 Understand economics trends and
communication.
6.02 Understand economic indicators to
recognize economic trends and conditions.
6.02-C Discuss the impact of a nation’s
unemployment rates.
5-174 5-175 6.02-C Define
• Unemployment rate:
– The proportion of the civilian labor force 16 years or
older that is actively seeking employment, but is
unemployed and not engaged in the production of
goods and services. The unemployment rate is
estimated and reported monthly by the Bureau of
Labor Statistics of the U.S. Department of Labor. It is
used not only as the prime measure of labor
unemployment in the economy, but also as a key
indicator of business-cycle instability.
Define:
• Frictional unemployment:
– Unemployment attributable to the time required to
match production activities with qualified resources.
Frictional unemployment essentially occurs because
resources, especially labor, are in the process of
moving from one production activity to another.
• Structural unemployment:
– Unemployment caused by a mismatch between
workers' skills and the skills needed for available
jobs. Structural unemployment essentially occurs
because resources, especially labor, are configured
(trained) for a given technology but the economy
demands goods and services using another
technology.
Define:
• Cyclical unemployment:
– Unemployment attributable to a general decline in
macroeconomic activity, especially expenditures on gross
domestic product, that occurs during a business-cycle
contraction.
• Seasonal unemployment:
• Unemployment attributable to relatively regular and
predictable declines in particular industries or occupations
over the course of a year, often corresponding with the
climatic seasons.
DEFINE:
• Technological unemployment:
• Unemployment caused by technological changes or
new methods of production in an industry or
business and results in less jobs.
• Full employment:
• The state that occurs when all of the economy's
resources are engaged in the production of output.
In practice, an economy is considered to be at full
employment when the unemployment rate is
around 5 to 5 1/2 percent and the capacity
utilization rate of capital is about 85 percent. This is
one of the five economic goals and three
macroeconomic goals.
Unemployment
• Discuss individual costs of unemployment.
– it destroys marriages
– it leads to depression
– drug abuse
– even suicide
• Describe economic benefits of unemployment.
– Averts runaway inflation
– Reduces wages/salaries
– Maintains higher productivity of current
workers
5-174 5-175
• Explain theories of the causes of
unemployment.
– Keynesian theory (of macroeconomics) explained
by the renowned British economist John Maynard
Keynes. This theory states that, unemployment is
resulted from increase in demand rates while the
economy operates below its growth rate and
potential output. Henceforth, the economy faces a
great blow under this circumstance.
Causes of Unemployment
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Economic Inflation
Economic Recession
Welfare Payments
Changing Technology
Job Dissatisfaction
Employee Values
Racial Discrimination
Unemployment
• Explain why the unemployment rate
understates employment conditions.
– Doesn’t show the number of long-term
unemployed or those without jobs for more
than six months
– Doesn’t talk about the number of those
working part time but wanting to work full
time
– Doesn’t mention that the number of new
entrants into the unemployment ranks rose
sharply last month
Cost of Unemployment
• Describe the costs of unemployment for a nation.
– Unemployment causes a waste of scarce economic
resources and reduces the long run growth potential of
the economy. High unemployment has an impact on
government expenditure, taxation and the level of
government borrowing each year
– An increase in unemployment results in higher benefit
payments and lower tax revenues. When individuals are
unemployed, not only do they receive benefits but also
pay no income tax.
– As they are spending less they contribute less to the
government in indirect taxes.
– This rise in government spending along with the fall in tax
revenues may result in a higher government borrowing
requirement (known as a public sector net cash
requirement)