Unemployment and the Labor Market

unemployed

“Adults” who do not have a job but are looking for work

Employed

“Adults” who have a job (worked at least 1 hour as a paid employee)

Labor Force

Number of employed and unemployed workers

Unemployment rate

The percentage of the labor force that is unemployed

= unemployed / unemployed + employed = unemployed / labor force

Adults (civilian noninstitutional population)

• resides in the US

• 16 years +

• not an active duty member of the U.S. Armed forces

• not living in institutions or facilities (prisons, jails, etc)

discouraged workers

workers who have given up looking for work but who would still like a job

• difficult to measure because the concept well defined

underemployment rate

part time workers who would rather have a full time position and people who would like to work but have given up looking for a job

frictional unemployment

short term unemployment caused by the ordinary difficulties of matching employee to employer, OUTSIDE OF RECESSIONS

(finding a job with a wage you want and the employer wants to pay)

structural unemployment

persistent, long-term unemployment caused by long lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs

• example: oil shocks, new technologies

Factors that generally increase structural unemployment

• large, long lasting shocks that require the economy to restructure

• labor regulations (unemployment benefits, minimum wages, powerful unions)

Factors that reduce structural unemployment

• active labor market policies

  • job assistance and job retraining programs that focus on getting unemployed workers back to work)

labor : supply and demand diagram

• useful for understanding structural unemployment

• supply is unlikely to exactly equal demand due to frictional unemployment

unions

an association of workers that bargains collectively with employers over wages, benefits, and working conditions

• provides values for workers and employers alike

• strong unions can have effects on labor supply and minimum wage

Employment at-will doctrine

an employee may quit and an employer may fire an employee at any time and for any reason

cyclical unemployment

unemployment correlated with the business cycle (recessions)

Okun’s law

When GDP changes, the unemployment rate almost always changes in the opposite direction

natural (noncyclical) unemployment rate

= structural unemployment + frictional unemployment

Labor force Participation rate

percentage of the “adult” population who are working or actively looking for work

LFPR = unemployed + employed / adult population = labor force / adult population