Chapter 10 Unemployment

what is the long run type of unemployment called

Natural Rate of Unemployment

what is the short run type of unemployment called

Cyclical Unemployment

Natural Rate of Unemployment

baseline level of unemployment in an economy that it returns to in the long run

does the natural rate of unemployment vary

yes

what counts as employed

worked any part-time or full-time paid job in the last week

what counts as unemployed

MUST MEET ALL 3 CONDITIONS:

1. don’t have a paid job

2. are willing and able to work

3. looked for jobs in the past 4 weeks

if you are temporarily laid off, you are counted as ___

unemployed

if you are starting a new job soon, you are counted as __

unemployed

what counts “not in the labor force”

neither employed or unemployed

3 examples of “not in labor force”

• retired

• full-time student

• stay at home parent

what might overstates the unemployment rate

well qualified job seekers take a few weeks to find a new job

what might understate the unemployment rate

1. Discouraged workers: willing to work but think no jobs are available, so they stop their search

2. Marginally attached workers: temporarily stopped searching (maybe starting work soon)

3. Underemployed workers: people working less than they want

   • in terms of hours (visible unemployment)

   • in roles their skills don’t match (invisible unemployment)

how do age, education, and regional differences affect unemployment

most unemployment periods are __

short

there is an ___ relationship between GDP growth and unemployment

inverse

name 2 causes of long run unemployment (don’t go into detail)

1. Frictional Unemployment

2. Structural Unemployment

Frictional Unemployment

The time spent looking for a job

• unemployed university graduates

• workers changing jobs, relocating, looking for their first job

• allows better matching between workers and jobs → improves productivity and satisfaction

Structural Unemployment

Unemployment for long periods of time due to a surplus in labor - more workers than jobs

• occurs when the wage is ABOVE the equilibrium wage

• minimum wage ensures living standards, but causes unemployment for young and less skilled workers

effect, advantage and disadvantage of

• Minimum wage

• Unions

• Efficiency Wages

• Gov policies

• Skills mismatch

In the labor market, __ are demanders and _ are the suppliers

businesses, workers

natural unemployment formula

Natural Unemployment = frictional unemployment + structural unemployment

Cyclical Unemployment

fluctuates with the economy’s ups and downs, often exceeding the natural rate during recessions and dipping below it during booms

• the impact of expansions and recessions

Cyclical Unemployment formula

cyclical = actual unemployment rate - natural unemployment rate