Unemployment.notebook November 25, 2015 Labor Force Participation - - PDF document

Unemployment.notebook 1 November 25, 2015

Feb 6­7:47 AM

Unemployment Rate # unemployed labor force 100 Labor Force = # employed + # unemployed

Jan 20­10:20 AM

Labor Force Participation Rate

labor force working age population X 100

• Dec. 2014 - 62.7% (BLS.gov)

Feb 6­7:44 AM

To be unemployed:

• Age 16+
• Able to work AND Actively seeking a job in the last

month

• NOT institutionalized (jails, hospitals...)
• NOT in the military, in school full time, or retired

Why is a stay-at-home mom NOT unemployed?

Feb 6­7:48 AM

3 Major Types of Unemployment

Feb 6­7:49 AM

Frictional Unemployment

• People are between jobs or looking

for first job

• NORMAL - ALWAYS EXISTS!!!
• Possess transferrable skills

Jan 20­9:42 AM

Seasonal Unemployment is a specific TYPE of frictional unemployment.

• Relates to time of year and nature of the job.
• These jobs come back!

Ex: Professional Santa Impersonators Construction workers in Minnesota

Unemployment.notebook 2 November 25, 2015

Feb 7­7:43 AM

Structural Unemployment

• More people are seeking jobs in a labor market than

there are jobs available at a particular wage rate

• Changes in the job market make some skills obsolete
• These workers DO NOT have transferrable skills

and the jobs WILL NOT likely come back

• Workers must learn NEW skills
• Largely due to CREATIVE DESTRUCTION

Jan 20­10:25 AM

Wage Rate Quantity of Labor Labor Supply Labor Demand

Other causes of structural unemployment: 1) Minimum Wage 2) Labor Unions 3) Efficiency Wages - employers pay higher wages as an incentive for better performance

Structural Unemployment

Feb 7­7:43 AM

Cyclical Unemployment

• results from downturns of the business cycle
• as demand for goods and services falls, demand for

labor falls and people are laid off

Jan 20­9:48 AM

The Natural Rate of Unemployment

Frictional and Structural unemployment are unavoidable. Together, they make up the natural rate of unemployment (NRU). If we ONLY have the NRU then we are at FULL EMPLOYMENT. FULL EMPLOYMENT is the absence

• f CYCLICAL UNEMPLOYMENT

This is the normal amount of unemployment we should have. Number of Job Seekers = Number of Positions Available.

Jan 20­9:53 AM

The Natural Rate of Unemployment

Economists agree that full employment is somewhere around 4-6% NRU=4-6% unemployment NRU in Germany and France is thought to be around 8-10%. Any idea why?

Jan 20­10:03 AM

Unemployment.notebook 3 November 25, 2015

Jan 20­9:55 AM

Okun's Law

Economist Arthur Okun discovered this empirical relationship between the rate of unemployment and GDP: When the unemployment rate rises 1% above NRU, we tend to see about a 2% drop in GDP. If the unemployment rate is at 8%, according to Okun's Law, how much has GDP likely fallen?

Jan 20­9:58 AM

Problems with the Unemployment Rate

Discouraged Workers: Some workers are no longer looking because they have given up. Underemployed Workers: Some people have part-time work but want full-time. Illegal Labor - Many people work under the table. Race/Age Discrepancies: Hispanic Workers 5.8% African American Workers 8.9% Teens 15.3%