Macro - Unemployment (lecture 4)

Labor Market

the market for the trading of labor sources

(the price of labor services is called wage)

Labor Force

the sum of persons over the age of 16 with jobs and those who do not have a job but are actively seeking one

Unemployed Person

A member of the labor force who does not have a job, but has actively sought employment during the previous 4 weeks

Employed (what qualifies adults/16 and above as being employed?)

• paid employees

• those working in their own business

• unpaid workers in a family member’s business

• both full-time and part-time employees

• those who are not working but have jobs from which they are temporarily absent from (e.g. vacation, illness, bad weather)

Unemployed (what qualifies adults/ 16 and above as being unemployed?)

• Available for work

• Have tried to find employment in the previous four weeks

• those waiting to be recalled to a job from which they had been laid off

Not in the labor force (what qualifies someone to not be in the labor force?)

• Full-time students

• Homemakers (stay-at-home mom/dad)

• Retirees

Labor Force (2nd definition, simpler)

The total number of workers, including both the employed and unemployed

Labor Force (formula)  

Number of Employed + Number of Unemployed 

Unemployment Rate (formula)

(Number of Unemployed/Labor Force)*100

Labor-Force Participation Rate (formula)

(Labor Force/Adult Population)*100

Discouraged Workers

Individuals who would like to work but have given up looking for a job

• Classified as “not in the labor force” rather than unemployed

Shortcomings of the Unemployment Rate

• excludes discouraged workers in unemployment statistic (even though they are prospective workers who cannot find jobs)

• does not distinguish between full-time and part-time work, or people working part-time b/c full-time work is not available

• some people misreport their work status

• may not be trying hard to find a job

• may want to qualify for government help

• may work but be paid “under the table” to avoid taxes on their earnings

Natual Rate of Unemployment

The amount of unemployment that the economy normally experiences

• it is the normal rate of unemployment around which the actual unemployment rate fluctuates

• Long-Run Perspective

Cyclical Unemployment

The deviation of unemployment from its natural rate.

• it is the year-to-year fluctuations in unemployment around its natural rate and is closely associated with the short-run fluctuations in economic activity

• Short-Run Perspective

Frictional Unemployment

• Unemployment that takes place because it takes time for workers to search for the job that best suit their tastes and skills

• short-spell for most workers

Structural Unemployment

• Unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

• when qty of labor exceeds the qty demanded (results when wages are above equilibrium level)

3 explanations of why some people are always unemployed

1. Minimum-wage laws

2. Unions

3. Efficiency wages

Natural Unemployment (equation)

Frictional Unemployment + Structural Unemployment