3.3 Macroeconomic Objectives- Unemployment

What are the 3 main objectives of an economy?

1. Economic Growth

2. Low Unemployment Rate

3. Slow and Stable Inflation

Possible additional goals: Sustainable Debt, Equity, and Income Distribution

Define the term “Unemployment”

People who are willing, able, and actively seeking employment, but are unable to find it.

Define the term “Discouraged Workers”

People who are of working age but have been unemployed and are not currently looking for a job. They are not included in the workforce.

Define what is meant by Labour Force/ Work Force

People of working age (18-65) who are employed, or unemployed and SEEKING work.

What are the 3 criteria that must be met to be considered in the labour force.

1. Willing to work

2. Able to work

3. Seeking employment

Define what is meant by Unemployment Rate

The number of unemployed workers expressed as a percentage of the total workforce /labour force.

How is Unemployment Rate calculated?

Number of Unemployed/ Total Labour force x 100

List (4 bullet points) the Difficulties in Measuring Unemployment

• Hidden Unemployment → This includes individuals who work fewer hours than they desire, or those working jobs in below their skill level (*also known as underemployed*)

• Discouraged Workers → Workers that have stopped looking for employment (how does it become known?)

• Issues with race, age, and gender info → Race, age and gender gaps in unemployment are not typically calculated

• Informal Jobs → People employed as unregistered workers, or those in illegal jobs

What are the types of Unemployment

1. Cyclical (Demand-Deficient)

2. Frictional Unemployment

3. Seasonal Unemployment

4. Structural Unemployment

Describe the type of Unemployment: Cyclical

Unemployment occurs due to a recession or a reduction in aggregate demand. Think: Cyclical= downturn in the Business Cycle

Describe the type of Unemployment: Frictional

People who are between jobs or have recently left education

Describe the type of Unemployment: Seasonal

Occurs when specific jobs are only offered periodically, during certain times in the year.

Describe the type of Unemployment: Structural

Occurs when there is a change in demand for particular skills in the labour market, such as technological changes, geographical changes, or changes in patterns of demand for particular skills.

Define the natural Rate of Unemployment

The percentage of people structurally, frictionally, and seasonally unemployed. ​There will always be changes in skills desired by businesses, people switching careers, and seasonal jobs. ​

This is why governments do not strive for zero unemployment, but rather a low rate (4-6 percent typically).​

What are the 3 categories of Costs of Unemployment

1. Economic Costs

2. Personal Costs

3. Social Costs

Describe the Economic Costs of Unemployment

• Lost of GDP​

• Loss of Tax Revenue​

• Increased Unemployment Benefit Cost​

• Lost of Income for Individuals​

• Greater Income Inequality​

Describe the Personal Costs of Unemployment

• Increased Debt (e.g. Credit Card)​

• Increased stress, anxiety, and depression​

Describe the Social Costs of Unemployment

• Increased Crime Rate​

• Loss of Access to Healthcare​

How to fix Cyclical Unemployment

• The economy needs to increase AD to combat the recession. ​

How to fix Structural Unemployment

• The economy needs to implement policies aimed at increasing education and flexibility in the labor market.​

How to fix General Unemployment

• An effective welfare system allows those who are unemployed to stay out of poverty and find new employment.​