macroeconomics: Unemployment & Labor

Karl Marx

Father of Communism and critic of capitalism; author of the Communist Manifesto and Das Kapital.

Bourgeoisie

In Marxist theory, the owners of physical capital.

Proletariat

In Marxist theory, the laborers or working class.

Employed

Individuals currently working for pay.

Unemployed

Individuals who are out of work and actively looking for a job.

Out of the Labor Force

Individuals who are not working and not looking for work.

Total Labor Force

The sum of employed and unemployed individuals.

Unemployment Rate

The percentage of adults who are in the labor force and seeking jobs, but do not have jobs.

Unemployment Rate Formula

(Unemployed people / Total labor force) × 100

Hidden Unemployment

People who are mislabeled in the categorization of employed, unemployed, or out of the labor force.

Underemployed

Individuals who are employed in a job that is below their skill level.

Discouraged Workers

Individuals who have stopped looking for employment due to a lack of suitable positions and are removed from the labor force.

Labor Force Participation Rate Formula

(Total labor force / Total adult population) × 100

Current Population Survey (CPS)

A monthly survey of 60,000 households used by the Bureau of Labor Statistics to estimate unemployment statistics.

Cyclical Unemployment

Unemployment closely tied to the business cycle, such as higher unemployment during a recession.

Sticky Wages

A situation where wage rates are stuck above equilibrium, leading to a surplus of labor (unemployment).

Why Wages Are Sticky

Employers are reluctant to cut wages during downturns due to worker aversion to nominal decreases and fear that the best workers will leave.

Natural Rate of Unemployment

The unemployment rate that would exist in a growing and healthy economy from underlying economic, social, and political factors.

Frictional Unemployment

Unemployment that occurs as workers move between jobs.

Structural Unemployment

Unemployment that occurs because individuals lack skills valued by employers.

Full Employment

The economic state when the actual unemployment rate is equal to the natural unemployment rate.

Supply-Side Public Policies & Unemployment

Policies like unemployment insurance and welfare that affect the opportunity cost of unemployment and worker eagerness to find jobs.

Demand-Side Public Policies & Unemployment

Government rules, social institutions, and unions that affect the willingness of firms to hire.

U.S. Natural Rate of Unemployment

Estimated by economists to be about 4.5% to 5.5%.

Factors Lowering the U.S. Natural Rate

The Internet as a job-seeking tool, growth of the temporary worker industry, and the aging of the baby boom generation.