Econ Week 10

Unemployed

Adult civilian without a job who actively looked for work within the last 4 weeks

Someone applying/interviewing for jobs

No job alone does not mean unemployed

Labor Force

Everyone who is employed + unemployed

94 employed + 6 unemployed = labor force of 100

Used to calculate the unemployment rate

Unemployment Rate

Unemployed ÷ labor force × 100

6 unemployed ÷ 100 labor force = 6%

Main measure of unemployment

Labor Force Participation Rate

Labor force ÷ adult population × 100

630 workers/job seekers out of 1,000 adults = 63%

Shows how many adults are working or looking

Discouraged Worker

Wants a job and searched within the past year, but not within the last 4 weeks

Gives up applying after months of rejection

Explains why someone without a job might not count in U3

U3

The official unemployment rate

Rate commonly reported in the news

Know that other measures U1–U6 also exist

Frictional Unemployment

Short-term unemployment caused by job matching

College graduate searching for their first job

Normal part of a dynamic economy

Structural Unemployment

Persistent, long-term unemployment caused by changes/mismatches in the economy

Factory worker's skills no longer match available jobs

Can last much longer than frictional unemployment

Cyclical Unemployment

Unemployment caused by recessions/business-cycle downturns

Restaurant lays off workers during recession

Rises when the economy weakens

Natural Rate of Unemployment

Frictional + structural unemployment

Unemployment that remains even without recession

Means a healthy economy still won't have 0% unemployment

Sticky Wages

Wages, especially nominal wages, are slow to fall

Firm lays workers off instead of cutting everyone's pay

Helps explain why unemployment can remain high after recessions

At-Will Employment

Employee can quit or employer can generally fire them at any time, subject to legal exceptions

Company can terminate a worker without guaranteeing lifetime employment

Lecture connects flexibility with hiring incentives

Labor-Market Rigidity

Rules that make hiring/firing and wage adjustment more difficult

Strict firing protections

Lecture argues more rigidity can increase structural unemployment

Insiders vs. Outsiders

Insiders have established/protected jobs; outsiders struggle to enter

Existing employees protected while young job seekers can't get hired

Shows unintended effects of strong job protections

Implicit Tax Rate

Actual taxes plus penalties/lost benefits from continuing to work

Retiree loses benefits by remaining employed

Higher implicit tax → fewer people choose to work

Sticky retirement incentive

People compare benefits/costs of working versus retiring

A 62-year-old chooses retirement because benefits become available

Explains changes in labor-force participation

Manufacturing Productivity

Producing more output with fewer workers

Technology lets one factory make more goods with fewer employees

Explains why manufacturing jobs can fall while manufacturing output rises

Demographic Effect

Population age affects labor-force participation

Baby Boomers retire → participation falls

Important for explaining changes in LFPR over time

Birth-Control Pill & Labor Supply

Greater control over timing of childbirth affected women's education/career choices

Woman delays childbirth to finish professional school

Helps explain rising female labor-force participation