Economics 2.2.3

UnemploymentUndere

Underemployment

A situation where there are people who are working, but not as much as they would like because there is not enough work available for them.

Discouraged Workers

A person who is old enough and able to work, but is not actively seeking employment.

• no job + previously unemployed

• not considered part of the Labor Force and not counted in the unemployment rate

Unemployment

When people in an economy are willing and able to work but do not have jobs.

Working-age Population Categories

Employed

• If he/she works at least one hour per week in a paid job

Unemployed

• Looked for work in the past month + not employed

• Have to be actively searching for a job

Out of the Labor Force

• Neither employed or unemployed + NOT searching for a job

Calculating Working-age Population

Population - under 15y/o

OR

Labor Force Population + not in Labor Force

Labor Force

The number of people aged 15 or over who are either employed or actively seeking a job (unemployed).

Calculating Labor Force

Employed + Unemployed

Labor Force Participation Rate

The percentage of the working-age population (civilian population over 15 years old) who are either employed or actively seeking a job.

Calculating Labor Force Participation Rate

# ppl in labor force / working age population x100%

Unemployment Rate

The percentage of unemployed people within an economy’s Labor Force.

Calculating Unemployment Rate

Unemployed ppl / # ppl in the Labor Force x100%

Seasonal Unemployment

Caused by changes in worker demand due to weather conditions & other seasonal factors.

Not very serious - can predict job availability according to season

Frictional Unemployment

Caused by the normal job search time required by people when changing jobs, initially entering the Labor Force, or re-entering the Labor Force.

Structural Unemployment

When there is a mismatch between the skills of available workers and jobs required by firms.

Serious: long in duration → > 6 months + jobs needed will not return; retraining needed

Occurs when △ demand/production processes

Cyclical Unemployment / Demand-deficient Unemployment

Due to low spending (↓C, I, X) & a downturn in the business cycle → companies cut back on production → ↓DD for labor

Full Employment

Occurs when there is no cyclical unemployment in the economy.

Unemployment level = seasonal + frictional + structural

Limitations of Unemployment Rate

• Respondents give false reports to get unemployment benefits (overstated)

• ↑ Discouraged Workers / Underemployment (understated)

• Based on random sample of households

• Expensive

• Time-consuming to collect data

• Subject to sampling errors