Unemployment Basics

1
Unemployment Basics

• Professor Jermaine Whirl
• Information to use by students of East Georgia
  College

Permission to reproduce or copy all or parts of
this material for non-profit use is granted on
the condition that the author and source are
credited. (Thanks Dr. Stonebraker)
2
So what, if we have Unemployment?

• Unemployment is a big concern for the economy,
  because if resources (human capital) are not
  being use to it's potential, then Potential GDP
  (productivity) cannot be reached!

• This is the only way that our economy can grow
  over time.
• If people aren't earning wages they can't
  purchase final goods and services (C-consumption
  GDP).
• If they aren't working then goods and services
  can't be made.

3
Unemployment Effects

• When people are unemployed the following occurs
• Unemployment Insurance benefits increase (If
  they've been working)
• Increase the needs for public goods and services.
• Crime (if they can't find any work at all and
  need resources to live).
• Decreases in living standards.
• Emotional stress or depression.

• In fact emotional stress for a period of time can
  cause a worker to become discouraged
• Discouraged Worker defined is
• Workers who have left the labor force, because
  they have not been able to find employment.

4
The Labor Force

• The Labor Force is defined as
• The total number of people employed or actively
  seeking employment.
• It is calculated By
• Number Employed Number Unemployed (but are
  looking for work)

5
Who is counted?

• To even be considered in the labor force you must
  be 16 years of age.
• You must be actively seeking work.
• This data is collected by local state employment
  offices, through a survey known as the CPS
  (current population survey)

6
Who do we count as being in the labor force?

• Who is not counted?
• Workers who are under 16.
• Volunteer Workers
• Military Soldiers
• People who are in prison
• People who are in hospitals or nursing homes
• Full-Time Students
• Retirees

• Who is counted as working
• Those who are working full-time for pay.
• Part-time workers
• Temp workers
• Self-Employed workers
• Family workers who work at least 15hrs a week at
  a family enterprise. (paid or unpaid)

7
Calculating Unemployment Rate

• The Unemployment Rate is what you always hear
  given on the news Its calculated by

Number Unemployed
100
Unemployed Should be the same number!
Labor Force
Final Equation
Unemployed
Employed Unemployed
8
Labor Force Participation Rate
Source United States Bureau of Labor Statistics
Labor Force Participation Rate The fraction of
the working- age population that is employed or
seeking employment . Because of the effect of
discouraged workers, the LFPR tends to decline in
recessions and rise in booms.
9
Labor Force Participation Rate Calculation

• The labor force participation rate is calculated
  as
• Labor Force / Civilian Population 100
• Civilian Population excludes military workers,
  people in prison, nursing homes etc..

10
3 Types of Unemployment

• Cyclical Unemployment ( Attempt to Correct)
• Frictional Unemployment (Cannot Correct)
• Structural Unemployment (Cannot Correct)

11
Cyclical Unemployment

• Cyclical Unemployment is defined as
• The increase in unemployment that occurs as the
  economy goes into a slowdown or recession.
• This is the one that is preventable the
  Government and the Federal Reserve tries to fight
  it as much as possible.
• If this is zero then we can reach Potential GDP
  Real GDP can exceed potential as well if
  resources are use efficiently and effectively.

12
Frictional Unemployment

• Frictional Unemployment
• Unemployment associated with people moving from
  one job to another or moving into the labor
  force.
• Read the Story of Mike "the Like" Layers
• http//www.ega.edu/facweb/jwhirl/there_are_no_jobs
  _available.htm

13
Structural Unemployment

• Structural Unemployment
• Long term unemployment that results from
  structural factors in the economy, such as a
  mismatch between the skills required by newly
  created jobs and the skills possessed by those
  who have lost their jobs in declining industries.
• So either they lack the skills necessary or the
  job is to far away Therefore, we would consider
  them unemployed.
• Read Materials from the World is Flat PowerPoint
• Found on my home page www.ega.edu/facweb/jwhirl