Unemployment

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Lesson 5-3
Unemployment
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Measuring Unemployment   Unemployment is measured
as the number of people not working but looking
for work at any one time.   The labor force is
the number of people working plus the number of
people unemployed.   The unemployment rate is the
number of people unemployed expressed as a
percent-age of the labor force.  
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Measurement Problems
The rates are calculated based on survey data.
Survey data always has some error to
it.   Part-time workers are counted as
employed.   A discouraged worker is one who is
not working and would like to work but who has
given up looking for work and is thus not counted
as unemployed.   The requirements to be counted
as looking for work are not stringent. There are
many reasons why you might say you are looking
for work when you really arent.
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Some Definitions
The natural level of employment is the level of
employment at which the quantity of labor
demanded equals the quantity supplied.   The rate
of unemployment consistent with the natural level
of employment is called the natural rate of
unemployment. The concept of the natural rate of
unemployment is difficult is grasp. Basically
its important to realize that even if jobs were
plentiful there would still be unemployment.
Therefore, zero unemployment is not a realistic
goal for the government. What should be the goal
of the government in setting macroeconomic
policy. Basically, to eliminate cyclical
unemployment. This is the best we can do. The
unemployment rate when the cyclical unemployment
rate is zero is the natural rate of unemployment.
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Types of Unemployment
Frictional unemployment is unemployment that
occurs because it takes time for employers
looking for workers and workers looking for
employment to find each other. Frictional
unemployment may even go up in good economic
times as people feel freer to take Merle Haggards
advice and take this job and shove it when jobs
are plentiful.   It should not be the goal of
the government to eliminate or reduce frictional
unemployment. Probably the internet will do more
to match workers with jobs than any other
invention.
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Types of Unemployment
Structural unemployment is unemployment that
results from a mismatch between worker
qualifications and firm requirements.   Technologi
cal change may make some skills obsolete and/or
require that new ones be developed   Too many or
too few workers may seek training or education
for specific jobs.   There may be a mismatch
between the location of workers and the location
of jobs.   Government policy to combat structural
unemployment usually focuses on training and
education
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Types of Unemployment
Cyclical unemployment is unemployment in excess
of the unemployment that exists at the natural
level of employment. This is basically
unemployment resulting from the business cycle.
The current spate of layoffs is mostly cyclical
unemployment, resulting from falling demand and
excess inventories in high tech companies. It
is a reasonable goal for the government to try
and eliminate cyclical unemployment.  
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Exhibit 5-8 show the unemployment level from 1960
to the present. Needless to say, the unemployment
rate charts the business cycle fairly well.