Unemployment
Who is unemployed?
• Anyone who is at least 16 years of
age and is actively seeking
employment
©1999 South-Western College Publishing
Who makes up the
Labor Force?
• All non-institutionalized people 16
years of age and older who are either
working or actively looking for work
©1999 South-Western College Publishing
What is the
Unemployment rate?
• The number of unemployed people expressed as a
percentage of the labor force
•
Unemployment rate = Unemployed/ Unemployed + Employed
Breakdown of the US Population
and the Labor Force
Persons under 16
Persons in the armed forces
Persons institutionalized
Total Population
Not in Labor Force
Civilian
Noninstitutional
Population
Employed
Civilian Labor Force
Unemployed
Survey on Unemployment
BLS calls 60,000 households every month.
They ask three questions:
1. Are you working? If the answer is no,
2. Did you work at all this month-even 1 day?
You are a member of the LF if “yes” on 1 or 2.
3. Did you look for work during the last month?
[agency, resume, interview] A “yes” counts you as
part of the LF. A “no” means you are not counted.
You are a “discouraged worker.” The labor force
consists of the employed and unemployed.
What are some of the problems
in measuring unemployment?
• Discouraged worker problem
• Part time workers
• Dishonest workers
Who is a
Discouraged Worker?
• A person who drops out of the
work force because he or she
cannot find a job
©1999 South-Western College Publishing
Are Discouraged Workers
counted in the labor force?
No! People who have
quit looking for work
are not counted as
part of the labor force
©1999 South-Western College Publishing
What about part-time
workers?
• Part time workers are counted as fully employed
– Whether you work one hour a week, or 80 the govt counts
you as employed.
– Distorts the labor force picture.
• Example – is unemployment in the economy going down
because the new jobs being created are part-time, low
skilled jobs, or are they full-time, high skill jobs?
• The quality of your economy depends on the answer to
that question
Can the unemployment rate
increase without anyone losing a
job?
• If more people enter the work force than the
number of new jobs generated, the
unemployment rate increases
©1999 South-Western College Publishing
What are different types of
unemployment?
• Frictional
• Structural
• Cyclical
• Seasonal
©1999 South-Western College Publishing
Three Types of Unemployment
Frictional – “temporary”, “transitional”, “short-term.”
(“between jobs” or “search” unemployment)
Examples:
1. People who get “fired” or “quit”
to look for a better one.
2. “Graduates” from high school or
college who are looking for a job.
3. “Seasonal” or weather-dependent jobs such as
“agricultural”, “construction”, “retail”, or “tourism”.
[lifeguards, resort workers, Santas, & migrant workers.]
Frictional unemployment signals that “new jobs” are available
and reflects “freedom of choice”.
These are qualified workers “transferable” skills.
2. Structural Unemployment
Structural – “technological” or “long term”.
There are basic changes in the “structure” of the labor
force which make certain “skills obsolete”.
Automation may result in job losses.
Consumer taste may make a good “obsolete”.
The auto reduced the need for carriage makers.
Farm machinery reduced the need for farm laborers.
“Creative destruction” means as jobs are created,
other jobs are lost. Jobs of the future destroy jobs of
today. Frictional and Structural make up the “natural
rate of unemployment”.
“These jobs do not come back.”
“Non-transferable skills” – choice is
prolonged unemployment or retraining.
3. Cyclical Unemployment
Cyclical – “economic downturns”
in the business cycle.
“Cyclical fluctuations” caused by “deficient AD”
“Durable goods jobs” are impacted the most.
These can be postponed because they can be repaired.
“Cyclical unemployment” is “real unemployment”.
“These jobs do come back.”
Cyclical Unemployment
“These jobs do come back.”
If Arnold S. gets laid off producing autos, he says,
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$56,500
$52,009
$51,496
$51,292
$51,046
$45,000
$44,564
$43,732
$43,462
$40,000
$40,600
$39,448
$38,775
$36,674
$28,000
$27,000
Seasonal
Is it possible to have a 0%
unemployment rate?
• Not likely. At any one time, the economy could
not absorb ALL the people who wanted a job.
There is always some unemployment.
– The best we could hope for is that there be no cyclical
unemployment from the ups and downs of the
economy.
– There will always be some level of Frictional and
Structural Unemployment.
• This is called: The Natural Rate of Unemployment
Graph—Natural Rate of
Unemployment
What is the natural rate of
unemployment?
• The sum of frictional and structural
unemployment
What is considered
Full Employment?
• An employment level at which the
actual rate of unemployment is
equal to the natural rate of
unemployment
– If the economy can get to this
definition of Full-employment it is
doing the best that it can!!!
©1999 South-Western College Publishing
What is considered to be
the natural rate of
unemployment?
• The natural rate varies, most estimates
are from 4-6%
©1999 South-Western College Publishing
Current Unemployment Rate
• The current unemployment rate in the
U.S. is about 8.0%. Is this good, bad,
or just about right?
What is considered to be
the natural rate of
unemployment?
• The natural rate varies, most estimates are
from 4-6%
©1999 South-Western College Publishing
Frequency
Time
Annual
2004
Quarterly
2005
2006
2006
Q3-2006
2007
Q4-2006
Q1-2007
Country
Australia
i
5.5
5.1
4.9
4.8
4.6
4.5
Austria
i
4.8
5.2
4.8
4.7
4.5
4.5
Belgium
i
8.4
8.4
8.2
8.1
7.9
7.7
Canada
i
7.2
6.8
6.3
6.4
6.2
6.1
Czech Republic
i
8.3
7.9
7.2
7.1
6.6
6.3
Denmark
i
5.5
4.8
3.9
3.7
3.6
3.4
Finland
i
8.9
8.4
7.7
7.8
7.4
6.9
France
i
9.6
9.7
9.4
9.3
9.1
8.8
Germany
i
9.5
9.4
8.4
8.4
7.9
7.2
Greece
i
10.5
9.9
8.9
8.7
8.6
..
Hungary
i
6.1
7.2
7.5
7.6
7.7
8
Ireland
i
4.5
4.3
4.4
4.4
4.2
4
Italy
i
8
7.7
6.8
6.6
6.5
..
Japan
i
4.7
4.4
4.1
4.1
4.1
4
Korea
i
3.7
3.7
3.5
3.4
3.4
3.2
Luxembourg
i
5.1
4.5
4.8
4.7
4.8
4.9
Netherlands
i
4.6
4.7
3.9
3.9
3.7
3.5
New Zealand
i
3.9
3.7
3.8
3.8
3.7
3.8
Norway
i
4.4
4.6
3.5
3.3
2.9
2.7
Poland
i
19
17.7
13.8
13.4
12.6
11.8
Portugal
i
6.7
7.6
7.7
7.6
8
8.1
Slovak Republic
i
18.2
16.2
13.4
13.1
12.4
11.1
Spain
i
10.6
9.2
8.5
8.3
8.4
8.2
Sweden
i
6.3
7.3
7
6.9
6.5
6.5
Switzerland
i
4.4
4.5
4
3.9
3.8
3.7
i
4.7
4.8
5.3
5.4
5.4
..
United Kingdom
Why do some other major
economies have persistently higher
unemployment rates than the U.S.
• Government policies
are a major culprit
Unemployment Theories - Costs of Unemployment - Who pays?
Perhaps the main cost of unemployment is a personal one to those who are unemployed.
However, if they suffer then the whole economy suffers. Individuals may become dispirited by
unemployment, they may lose their self-esteem and confidence. This may affect their
motivation to work. The longer they are unemployed the more they may lose their skills and
this has to be bad for the economy as well. On top of that these problems (and financial ones)
often lead to the unemployed being less healthy, and then the NHS picks up the bill. The whole
economy suffers from people being unemployed.
As well as these microeconomic effects, there will also be macro effects. These will include:
Loss of output to the economy - the unemployed could be producing goods and
services and if they aren't, then GDP is lower than it could be.
Loss of tax revenue - unemployed people aren't earning and they therefore aren't
paying tax. The government has lost out.
Increase in government expenditure - the government has to pay out benefits to
support the unemployed. Along with the loss of tax this is a 'double whammy'.
Loss of profits - with higher employment firms are likely to do better and make
better profits. If they make less profit because of unemployment, they may have
less funds to invest.
The answer then is - we all pay.