Unemployment

1
Unemployment

• Here we look at the measurement of unemployment
  and issues related to measurement.

2
Unemployment
Lets think about how unemployment is measured.
People(16 years old or older and not in an
institution) can be classified basically one of
three ways(call it labor force status) 1)
employed, 2) those wanting to work and currently
looking for work but not working- this is what we
call unemployed, 3) those who dont want to
work - like retired people or those seeking an
education or a discouraged worker(we will see
later). This third group could be called not in
the labor force. Now the labor force those
employed those unemployed.
3
Unemployment rate
The unemployment rate (those unemployed/labor
force)100. Example 60 people employed, 2
unemployed and 38 not in labor force. The
unemployment rate (2/62)100 3.2. Note
labor force participation rate (employed
unemployed) Divided by (employed unemployed
those not in the labor force), then the whole
thing times 100. Note whether or not you
collect unemployment payments is NOT an issue in
calculating the unemployment rate.
4
Unemployment rate
The unemployment rate can be misleading
because 1) if someone is underemployed( working
part time, but wanting full time work, or working
in a job that does not fully utilize their
skills) the unemployment rate is too low We
dont count partial unemployment , 2) if someone
is discouraged(someone who was looking for work,
but has finally quit looking and is thus treated
like a retired person) the unemployment rate is
also too low. Lets see how (exaggerated
example) 50 people working, 50 people unemployed,
unemployment rate 50/(50 50) .5 or 50. Now
say 25 unemployed get discouraged and quit
looking rate 25/(50 25) .33 or 33 - this
is lower than the 50.
5
Types of unemployment
There are three types of unemployment 1)
Frictional, 2) structural, and 3)
cyclical. Frictional unemployment includes those
searching for and/or waiting to take jobs. A
fresh out of school graduate may not get a job
right away. During the search process this
individual would be considered unemployed -
provided they were not working elsewhere. Some
people dont accept the first job offer and thus
wait. This is unemployment as well.
6
Types of unemployment
Structural unemployment occurs when the structure
of the economy changes and people lose jobs. An
example of this would be at the turn of the
century (19th to 20th) when people in the US
started buying cars. The blacksmith was no
longer needed in the way they were in the past.
This structure of demand change meant a loss of
jobs. There could be supply changes as well. I
dont want you to think frictional and structural
unemployment are painless. They are very
painful to those involved. But these types of
unemployment seem inevitable in an economy like
ours. It takes time to find a job and we
sometimes stop buying certain goods.
7
Types of unemployment
Cyclical unemployment is that unemployment that
occurs during the recessionary phase of the
business cycle. If the swings in the business
cycle could be eliminated we wouldnt have this
type of unemployment.
8
Full employment
The term full employment has a special meaning in
macroeconomics. It does NOT mean everyone is
working. Full employment is said to occur when
there is no cyclical unemployment. There is
still frictional and structural unemployment,
but it is hard to do anything about that. We
could force people to buy stuff they dont want
or we could force you to take the first job
offered. But it seems we dont want to do these
things, so some unemployment is
inevitable. There is a feeling among economists
that the business cycle can be managed and thus
cyclical unemployment can be eliminated.
9
The natural rate of unemployment
When cyclical unemployment has been eliminated,
not only do we have full employment, we say the
rate of unemployment is at the natural rate. By
the way, the RGDP potential RGDP when the
natural rate of unemployment is achieved.