ECON 2105: Employment and Unemployment

Working age population

people 16+ who are not in the military or institutionalized

Employed

working aged people who are working at lest one hour per week (includes people taking a temporary absence from work)

Unemployed

working age people without jobs trying to get jobs

Labor Force

employed + unemployed

Not in Labor Force

neither employed nor unemployed (retired, in school, unwell, caretaker, etc)

Labor Force Participation Rate

percentage of working age population that is either employed or unemployed

(employed + unemployed) divided by (working age population) all multiplied by 100

Formula for the Labor Force Participation Rate

unemployment rate

percentage of labor force that is unemployed

(unemployed divided by the labor force) multiplied by 100

formula for the unemployment rate

In a dynamic labor market

it is easy for new entrants to find a job quickly

some sectors shrink while others expand

most job seekers are employed

Long Term Unemployment

People who have been unemployed for 6 consecutive months or longer

Discrimination and skill loss

x and y make it hard for long term unemployed people to find work.

Marginally Attached

someone who wants and has looked for a job within the last year but isn't currently searching for work (not counted in unemployment)

Reasons for being marginally attached

discouraged worker

family responsibilities, transportation problems, etc.

U-5 = (unemployed + marginally attached) divided by (labor force + marginally attached)

Formula for Unemployment Including the Marginally Attached

Underemployed/Involuntary Part Time

someone who has some work but wants more hours or whose job isn’t adequately using their skills

U-6 = (unemployed + Marginally attached + IPT) divided by (labor force + marginally attached)

Formula for Unemployment Including the Involuntary Part Time (IPT)

Equilibrium Unemployment Rate

long run unemployment rate to which the economy returns over time

cyclical unemployment

this type of unemployment is NOT included in the long run

Frictional Unemployment

unemployment due to the time it takes for employers to search for workers and for workers to search for jobs

Structural Unemployment

unemployment that occurs because wages don’t fall to bring the demand and supply of labor to equilibrium

Cyclical Unemployment

unemployment that occurs due to a temporary economic downturn

Efficiency of Resources (Information)

Unemployment Insurance and Income Support

Alignment of Skills between Workers and Employers

Factors of Frictional Unemployment

the opportunity cost of searching for a job

Unemployment Insurance decreases

efficiency wages (higher wages)

institutional barriers (unions and job protection, and minimum wage laws)

Factors of Structural Unemployment

Costs of Unemployment

Temporary unemployment can lead to persistent lower earnings

Permanent unemployment can rise from periods of high unemployment

Government receives lower tax revenue but spends more

Hysteresis

an event in the economy that persists into the future even after factors causing the event have been removed