Unemployment & Business Cycle
Business Cycle
Causes
1. Irregularities of Investment
2. Change in productivity
3. Changes in total spending
•
Durable goods are most
susceptible to affects of
business cycle. Why?
GDP and Business Cycle
Unemployment
Under 16/
institutionalized
74.7 mil
▫ People who are able and
willing to work
▫ About 50% of population
• Total U.S. population split
into 4 groups
1. Under 16 or
institutionalized
2. “Not in labor force”
 Discouraged workers
 College students,
homemakers, retirees
3. Employed
 Work at least 1 hr in 2 weeks
4. Unemployed
 Not worked in past 2wks-12
months
Total Population: 288.6 Million
• Labor Force
“Not in labor
force”
71.4 mil
Employed
134.2 mil
Unemployed 8.3 mil
Current Unemployment Data
• Unemployment Rate (u%)= 9% (bls.gov), 9.8%
(gallup poll)
• Not in Labor Force: +3%
▫ Discouraged workers: +50%
Types of Unemployment
1. Frictional
▫ “Between jobs”
▫ Voluntary move or
fired/laid off
▫ Changes from
month-month are
inevitable
• Frictional—market does
not operate perfectly
Types. . .
2.
Seasonal
▫
Unemployment based on
Seasons--Santa during July,
Alaskan golfers during the
winter, etc.
3.
Structural
▫
Lack of skills or decline in
industry


▫
i.e. High School drop-out,
typewriter repairman
Think “Creative
Destruction”
Geographical


Migration of industry
Overseas, urban to
suburban
Types. . .
4. Cyclical
▫
▫
▫
Higher unemployment from decline in spending
Recessionary phase
Most serious problem
Full Employment
• No Cyclical Unemployment
• Level of unemployment when
economy is at full potential
• Best known as: Natural Rate
of Unemployment (NRU)
• Approx. 4-5%
Why Unemployment is bad
Okun’s Law: (Arthur Okun)
▫
Every 1% increase in
u% causes 2% decrease
in GDPr
UR Practice
Determine which of the following are unemployed.
• If unemployed, then determine the type of unemployment.
• If not unemployed, then write down ‘not in labor force.’
1.
Arvod cannot find work as a mall Santa in January.
2.
Beulah leaves her job to become a stay at home mom.
3.
Grover is laid off of work when the economy experiences a recession.
4.
Tuabulu dropped out of his G.E.D. program and has difficulty finding work.
5.
Boris, the human calculator, is replaced by the TI-83.
6.
Nimrod leaves his job as a teacher to look for work in the fast food industry.
7.
Queen Oli-go-poly graduates from college and begins looking for work.
8.
Kimple has difficulty finding a job as a life guard after Labor Day.
9.
Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He has
difficulty finding a girlfriend.
10.
Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.