Topic 2.3: Unemployment
Mr. McCutcheon
AP Macroeconomics
Introduction: What is Unemployment?
• (69) Unemployment - Economic Lowdown – YouTube
• Questions:
• What are the 3 categories we divide people into when calculating
unemployment?
• What are the requirements to be unemployed?
• How do we calculate unemployment?
• What are the 3 different types of unemployment?
What is Unemployment?
• Unemployment refers to the situation when a person is actively
searching for employment.
• The same term applies to when we look at unemployment on a
statistical scale to find how many people are actively searching for
employment that are in the labor force.
• It is important to us because it measures:
• The health of the economy
• Is the primary mandate of many central banks (Federal Reserve).
Why do we care about Unemployment?
• Unemployment is bad for the economy, but why?
• An unemployed person represents unutilized resources.
• Unemployment can also lead to what are called “deaths of despair”.
• Unemployment increases mortality by 63%
• It is estimated that every 1% increase in unemployment translates to 36,000 deaths.
• In order to combat these effects, governments pay transfer payments.
• How much unemployment tells us how much the government will likely have
to spend.
How do I calculate Unemployment?
• Slow down, first we have to make sure we are counting everybody in
the labor force.
• To be in the labor force, you must be:
• Over 16 years old
• Looking for work or employed.
• We then take the people that are employed and divide them by the
total number of people in the labor force.
Types of Unemployment
• Frictional Unemployment – Short-term unemployment that occurs
between jobs or after completion of recent education or training.
• Cyclical Unemployment – Unemployment that occurs in response to
economic recessions and industry downturns.
• Structural Unemployment – Typically the result of long-term cyclical
unemployment. This is when employee skills are no longer necessary
in the local labor market.
Lets look at the BLS ourselves
• Civilian unemployment rate (bls.gov)
• Where are the two peaks on the graph? When are they?
• Is there a point where the line never goes below?
• Why do you think the unemployment rate never reaches 0%?
Why did I read a whole chapter on this?
• Unemployment is incredibly complicated.
• Much like GDP, it has limitations of its own.
• Can you think of anything that unemployment rate does not tell us?
• What happens when somebody gives up looking for a job? What
happens to the unemployment rate?