Unemployment
Chapter 6
Measuring Unemployment
 An economy with unemployment is
wasting resources and producing at a
point inside the production possibilities
frontier.
A.
Labor Force
 Individuals age 16
and over, excluding
those in the military,
who are either
employed or actively
looking for work.
 Employed
 Unemployed –
actively seeking
employment
Unemployment Rate
 The ratio of the number of unemployed
persons to the number of persons in the
labor force.
 U = # of unemployed X 100
Labor force
Labor force participation
 The ratio of the labor
force to the population
age 16 and over;
expressed as a
percentage
 Increase in participation
rate
 67%
 Labor fore participation
and job creation depend
on each other.
 A strong economy leads
to more people entering
the job market thus
slowing down the
reduction in the
unemployment rate
Labor Force Participation
 Increase opportunities
for women
 Increase in minorities
 Opportunities for
workers to take early
retirement
 Better healthcare
 Government aid
 Individual attitudes
Unemployment rates
 Unemployed means
 At least 16 years old
 Without work
 Actively looking for a job
Problems with rate
 Part time employees considered
employed
 Institutionalized individuals not in labor
force
 Underemployed
 Discouraged workers
 Underground economy
Types of unemployment




Frictional unemployment
Seasonal unemployment
Structural unemployment
Cyclical unemployment
 Structural and cyclical unemployment are
usually of most concern, because they
represent involuntary unemployment
Frictional Unemployment
 Unemployment
associated with
entering the labor
market and switching
jobs.
 Workers have the
necessary skills for
the jobs available
Seasonal Unemployment
 Unemployment that
can be predicted to
recur periodically,
according to the time
of year
Structural unemployment
 Unemployment caused
by a mismatch between
a person’s human capital
and that needed in the
workplace
 Employees do not have
the necessary skills for
the jobs available
 Change in the goods
demanded in the
economy
 Human capital
Cyclical
 Unemployment from a downturn in the
business cycle that affects workers
simultaneously in many different
industries.
 A systematic disorder
 Recessions are temporary
Unemployment Insurance
 Unemployed workers
may qualify for state
provided payments
 Fire workers do not
 Contributes to higher
unemployment
 Actively seeking
employmetn
Natural Rate of
Unemployment
 The minimum sustainable level of
unemployment; associated with zero
cyclical unemployment.
 Tendency for unemployment to settle at a
few percentage points above zero, due to
the inevitable presence of seasonal,
frictional, and structural unemployment
 4%
Full employment
 100 percent less the
natural rate of
unemployment
 Everyone who wants
a job has a job
 Yet some people still
unemployed