Unemployment

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Unemployment

• Outline
• The labor force participation rate
• The unemployment rate
• Types of unemployment
• The social and economic costs of unemployment

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Unemployment
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Labor force does not include

• Discouraged Workers
• People who are available and willing to work but
  have not made specific efforts to find a job
  within the previous four weeks.

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The Changing Face of the Labor Market
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(end of May each year)
www.bls.gov
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23.5 million new jobshave been added in the U.S.
since 1991
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Employment statistics for the U.S., May 2000 (in
thousands)
Thus, the unemployment rate is given by
Source http//www.stats.bls.gov
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Unemployment rates in industrialized countries,
May 2000
Source The Economist
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Unemployment by Reasons
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Types of unemployment

• Economists distinguish between four types of
  unemployment
• Frictional
• Seasonal
• Structural
• Cyclical

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Frictional unemployment

• This type of unemployment is the (unavoidable)
  product of the movement of human resources
  between jobs, or into the labor force.

I havent found a jobyet, so Im
frictionallyunemployed
Im a techie whois relocating toDallas
becausemy wife got transferred
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Seasonal unemployment

• Unemployment arising from the seasonal nature of
  some economic activities.

• Construction workers in Minnesota unemployed in
  February.
• Employees of ski resorts unemployed in July.

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Structural Unemployment
Self Serviceled to the demiseof the gas
station attendant

• This is unemployment arising from changes in the
  structure of output or methods of production.

• Displacement of Delta farm workers as a result of
  the mechanization of agriculture.
• Displacement of draftsmen due the the movement to
  computer aided design (CAD).
• Displacement of auto workers due to car assembly
  by computer-guided robots.

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I couldnt find workin 1991, becausehardly
anyone was building a new home
Cyclical unemployment

• This is unemployment due a general contraction
  in the level of business activity--that is,
  recession related unemployment

• Auto and farm equipment workers laid off to to
  weak sales.
• Workers in heavy machinery industries laid off
  because investment spending is soft.

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Unemployment is a drag!

• Unemployment causes stress on individuals and
  families.
• Unemployment is correlated with rising incidence
  of spousal and child abuse, divorce, drug and
  alcohol use, and crime.
• The purely economic cost of unemployment is lost
  physical output, as measured by the GDP Gap

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GDP Gap
GDP Gap Potential GDP - Actual GDP, where
potential GDP is the the level of output the
economy would achieve if the unemployment rate
were equal to the Natural Rate of the NAIRU
NAIRU is an acronym for non-acceleratinginflatio
n rate of unemployment. It isthe unemployment
rate corresponding to zerocyclical unemployment
NAIRU is the full-employmentunemployment rate.
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The GDP Gap in 1983
Actual unemployment inwas 9.6. If you
assumethat the NAIRU was 6, then we can use
Okuns law to estimatea GDP gap of 352billion
for 1983 (1987 dollars)
Okuns law each percentage point difference
between the unemployment rate and the NAIRU
converts to a 2.5 percent GDP gap.
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Unemployment and Real GDP