ECON2013 Unit 3

Natural Rate of Unemployment

A term describing the amount of unemployment an economy usually experiences

Cyclical Unemployment

A term describing the year-to-year fluctuations of unemployment an economy naturally experiences. These fluctuations are generally short-run.

Employed

Category for paid employees, business owners, or workers employed for free at a family business. Includes those on temporary leave.

Unemployed

Category for those who are not working, are available to work, and have been searching for work. Includes those who have been temporarily laid-off.

Not in the Labor Force

Category including those who fit neither employed nor unemployed, this includes full-time students, homemakers, retirees.

Which category of employment does this example fall under?

• Children under 16

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Not in Adult Population

Which category of employment does this example fall under?

• People in jail

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Not in Adult Population

Which category of employment does this example fall under?

• Retired, capable of working

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Not in Labor Force

Which category of employment does this example fall under?

• Homemakers

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Not in Labor Force

Which category of employment does this example fall under?

• Wants and is searching for a job

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Unemployed

Which category of employment does this example fall under?

• Wants but is not searching for a job

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Discouraged Worker

Which category of employment does this example fall under?

• No job, has been searching for months

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Unemployed

Which category of employment does this example fall under?

• Has a job they hate

(Not in Adult Population, Not in Labor Force, Employed, Unemployed, Discouraged Worker)

Employed

How would you describe this economic scenario?

• Year-to-Year fluctuations in unemployment around its natural rate

An example of cyclical unemployment

How would you describe this economic scenario?

• Unemployment caused by the time it takes someone to find the right job to suit their needs and skillset

An example of frictional unemployment

How would you describe this economic scenario?

• Unemployment resulting from the pool of unemployed people being far above the availability of open jobs, whose qualities are insufficient for the would-be workers’ needs

An example of structural unemployment

How would you describe this economic scenario?

• The amount of unemployment an economy usually experiences

An example of the natural rate of unemployment

Labor Force formula

Labor Force = # of Unemployed + # of Employed

Unemployment Rate formula

UR = ( Number of Unemployed / LF ) * 100

Labor Force Participation Rate formula

LFPR = ( Labor Force / Adult Population ) * 100

Cyclical Unemployment is also known as the _ of unemployment from the natural rate

deviation

Discouraged Workers

People who have given up searching for a job they want, taking them out of the labor force

[T/F] Most spells of unemployment are short, but most unemployment observed at any given time is long-term.

True, it is simply more likely your statistic includes someone who has been unemployed long-term than someone in-between jobs.

Frictional Unemployment

Unemployment caused by people filtering their search to find a job that best suits what they need. This usually explains why some people are unemployed for relatively short time periods.

Structural Unemployment

Unemployment arising when the number of available jobs is less than the number of people looking for work and insufficient in quality to fit their needs

Ordinary

Another word to describe frictional unemployment

Natural Rate of Unemployment Formula

NRU = Structural Unemployment + Frictional Unemployment

The population of Ectenia is 100 people: 40 work full-time, 20 work half-time but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged that they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired.

What is the number of unemployed?

What is the size of Ectenia’s labor force?

10, 70

Sectoral Shifts

Changes in the composition of demand among industries or regions.

Why would sectoral shifts cause unemployment?

It takes time for workers to move on into new sectors once the sector has changed, this is unemployment

Sectoral Shifts are considered a type of _ Unemployment

Frictional

[T/F] Frictional unemployment is inevitable, but the severity can helped.

True

Methods to reduce the severity of frictional unemployment

Job boards, government programs (to search for jobs), training programs

Unemployment Insurance

A government program that partially protects the incomes of workers who have become unemployed, considered to be an unintentional factor increasing frictional unemployment

You can get unemployment insurance if you were fired for being bad

No, you can’t

You can get unemployment insurance no matter what

No, certain disqualifying attributes are being fired for a reason, quitting, or recently entering the labor force

If wage is kept _ the EQ for any reason, there will be a _ in labor supply, causing _.

Above, Surplus, Unemployment

When unemployment is frictional…

…workers are searching for jobs that best suit their tastes and skill

When unemployment is structural…

… the quantity of labor supplied exceeds the quantity demanded, workers are waiting for jobs to open up

Minimum wage laws are considered to be a cause of _ unemployment

Structural

Union

This term describes a collective bargaining worker association that seeks to gain wages, benefits, and working conditions favoring workers and/or its members

Four reasons economies may experience more unemployment

Job search, minimum-wage laws, unions, theory of efficiency wages