UNEMPLOYMENT

1
UNEMPLOYMENT

• Society in general and Economists in particular
  are interested in the problem of unemployment
  because of its economic and non-economic effects
  on people and the society

2
Why Should We be Concerned about Unemployment?

• Economic Effects
• The opportunity cost of Unemployment is measured
  in terms of lost GDP and
• Lower standards of living of the unemployed
• Non-Economic Effects
• The human suffering and misery that are
  associated with unemployment and
• The increase in social problems such as crime

3
The Okuns Law

• Increases in the unemployment rate should be
  associated with decreases in real GDP
• Arthur Okun

4
Types of Unemployment

• Frictional Unemployment
• associated to normal turnover in the labor market
  and the mismatch between workers skills and the
  available jobs and
• Real-Wage Rigidity and Wait Unemployment
• the failure of wages to adjust to clear the labor
  market.

5
Causes of Real-Wage Rigidity

• Minimum-Wage Laws
• the government prevents wages from falling to the
  equilibrium level
• Unions and Collective Bargaining
• the monopoly power of labor unions holds wages
  above the equilibrium level and
• Efficiency Wages
• high wages make workers more productive.

6
Public Policy and Unemployment

• Any policy aimed at lowering the natural rate of
  unemployment must either reduce the rate of job
  separation (s) or increase the rate of job
  finding (f). Similarly, any policy that affects
  the rate of job separation or job finding also
  changes the natural rate of unemployment
• Unemployment Rate (U / L) s / (s f)