Unit 2:�Economic Indicators and the Business Cycle

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Topic 2.3-

Unemployment

Unemployment: Workers that are actively looking for a job but aren’t working.

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The Unemployment Rate: The percent of people in the labor force who want a job but are not working.

Who is in the Labor Force?

• At least 16 years old
• Able and willing to work
• Not institutionalized (in jails or hospitals)
• Not in military, in school full time, or retired

What is Unemployment?

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How do we measure unemployment?

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Labor Force Statistics

BLS divides population into 3 groups

• employed: paid employees, self-employed, �and unpaid workers in a family business
• unemployed: people not working who have looked for work during previous 4 weeks
• not in the labor force: everyone else

Labor force: the total # of workers, including the employed and unemployed

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CHAPTER 28 UNEMPLOYMENT

Labor Force Statistics

CHAPTER 28 UNEMPLOYMENT

Labor force participation rate: �% of the adult population that is in the labor force

Unemployment rate (“u-rate”): �% of the labor force that is unemployed

A C T I V E L E A R N I N G 1: �Calculate labor force statistics

Compute the labor force, u-rate, adult population, and labor force participation rate using this data:

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A C T I V E L E A R N I N G 1: �Answers

Labor force = employed + unemployed� = 143.1 + 7.0� = 150.1 million

U-rate = 100 x (unemployed)/(laborforce)� = 100 x 7.0/150.1� = 4.7%

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A C T I V E L E A R N I N G 1: �Answers

Population = labor force + not in labor force� = 150.1 + 77.4� = 227.5

LF Partic. Rate = 100 x (labor force)/(population)� = 100 x 150.1/227.5� = 66.0%

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-Doesn’t Count (not in the labor force)

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-Unemployed

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-Doesn’t Count (not in the labor force)

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-Employed

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-Employed

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-Doesn’t Count (not in the labor force)

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-Employed

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Employed, Unemployed, or Does Not Count?

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1. Your retired grandparent

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2. A 16 year old high school student who applied for work

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3. A 16 year old high school student who quit work for sports

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4. A single mom looking for a second job

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5. A college student who works part time at a grocery store

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6. A prisoner serving a 5 year sentence

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7. A teacher that doesn’t work during the summer

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8. You

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2008 Audit Exam

2008 Audit Exam

2012 Audit Exam

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Three Types of Unemployment

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• Frictional Unemployment
• Structural Unemployment
• Cyclical Unemployment

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Frictional Unemployment

Frictional unemployment

Temporary unemployment or being between jobs. They have skills that are transferable to new jobs.

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Examples

• High school or college graduates looking for jobs.
• Individuals that were fired or are looking for a better job.

Seasonal Unemployment

A specific type of frictional unemployment, which is due to the time of the year and the nature of the job.

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• Structural Unemployment: Changes in the labor force make some skills obsolete. These workers DO NOT have transferable skills and these jobs will never come back. Workers must learn new skills to get a job.

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• Examples: VCR repairman, milkman, technological unemployment

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Structural Unemployment

Some Jobs Disappear

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Some Jobs Disappear

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Cyclical Unemployment

Cyclical Unemployment: Unemployment caused by a recession and therefore a decrease in the demand for labor. This is sometimes called “demand deficient unemployment.”

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Examples

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• Steel workers laid off during recessions.
• Restaurant owners lay off waiters after months of poor sales due to recession.
• High unemployment during the Great Depression.

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Natural Rate of Unemployment (NRU)- Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing.

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Full Employment Output (Y)- The Real GDP created when there is no cyclical unemployment.

The Natural Rate of Unemployment

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Natural Rate of �Unemployment (NRU)

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Many people assume that our goal is zero percent unemployment, but it’s not. Why?

Draw a PPC with consumer goods on the horizontal axis and capital goods on the vertical axis.

Assume the natural rate of unemployment is between 4%-6%. Add the following points to your graph:

Point A - unemployment rate of 8%

Point B - unemployment rate of 5%

Point C - unemployment rate of 1%

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Now draw a business cycle showing the same points.

C

C

B

B

A

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Capital Goods

Consumer Goods

The PPC and the Business Cycle

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Full Employment

5% Unemployment

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Max Capacity

0% Unemployment

Time

Real GDP

Real

GDP

6+% Unemployment

4-6% Unemployment

Super low unemployment leads to inflation

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• Discouraged Workers

Some people are no longer looking for a job because they have given up.

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• Labor Force Participation Rate

If people leave the labor force, the unemployment rate falls.

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• Underemployed Workers

Someone who wants more hours but can’t get them is still considered employed.

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• Race/Age Inequalities

The overall unemployment rate doesn’t show disparity for minorities and teenagers.

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Criticisms of the Unemployment Rate

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Are You Unemployed?

2008 Audit Exam

2012 Audit Exam

2013 Audit Exam

2006 Practice FRQ

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