Low Unemployment

Individual Consequences

Decreased household income, loss of purchasing power, and increased stress and illness

Social Consequences

Pressure on wages to increase at a slower rate than the increase in productivity, increased crime, homelessness

Economic Consequences

Decreased aggregate demand, underutilization of the nation’s resources, brain-drain, protectionism and isolationism, less taxes coming in, money spent on social welfare programs

Frictional Unemployment

When people move between jobs or into the labor market - not a bad thing

How can frictional unemployment be reduced?

Lessening welfare benefits, increasing flow of information about available jobs

How can seasonal unemployment be reduced?

Encouraging people to take jobs in the off-season, reducing unemployment benefits, better flow of information

Structural Unemployment

Results from a permanent shift in the demand for labor - technological changes, globalization, lack of skills, changes in consumer tastes, laws governing the labor market or trade unions

Cyclical Unemployment

Associated with downturns (recessions) of an economy

How can cyclical unemployment be resolved?

Increasing aggregate demand

Natural rate of unemployment

The combination of frictional, structural, and seasonal