CH - 21 // Unemployment

Labor force

The group of adults who are either employed or actively looking for work.

How is the unemployment rate defined?

It’s the number of unemployed persons divided by the number of persons in the labor force.

Frictional unemployment

Unemployment that occurs when people are changing jobs or entering/leaving the labor force in a dynamic economy.

Does the unemployment rate ever fall to zero in the U.S.?

No — even in strong times there's always some unemployment.

Structural unemployment

Unemployment caused when there is a long-term mismatch between workers’ skills and available jobs, structural changes in the economy.

Which demographic groups tend to have higher unemployment rates in the U.S.?

Young people, less‐educated individuals, and certain racial/ethnic minority groups.

Cyclical unemployment

Unemployment resulting from economic downturns — i.e. when demand for labor falls as part of the business cycle.

What does “sticky wages” refer to in context of unemployment?

Wages that do not adjust downward easily, contributing to unemployment when demand for labor drops.

Natural rate of unemployment

The normal unemployment rate when the economy is not in recession — including frictional + structural unemployment.

What costs does high unemployment impose on individuals and society?

Loss of income, stress, unused resources/opportunity costs for society.

Labor force participation rate

The percentage of adults who are either employed or actively looking for work (in labor force / adult population).

How do short-run and long-run causes of unemployment differ?

Short-run causes include demand fluctuations and wage stickiness; long-run causes include structural shifts, skills mismatch, institutional factors.

Demographic unemployment pattern

Differences in unemployment rates across groups — age, education, race/ethnicity, etc.

Why might expanding labor supply raise the “natural” unemployment rate, according to theory?

If wages are sticky, an increased supply can increase unemployment until labor demand catches up.

Business cycle (in this context)

Periodic expansions and contractions in the economy that affect unemployment rates.

What is one way economists measure changes in employment/employment trends?

Surveys: household survey for unemployment rate; payroll survey for net job changes.

Opportunity cost of unemployment

The output and productive potential lost when willing workers remain unemployed.

Does education level affect unemployment risk?

Yes — less educated workers tend to have higher unemployment rates.

Unemployment rate

Percentage of labor force that is unemployed.

Can an economy have full employment?

No, because frictional and structural unemployment always exist, making zero unemployment unrealistic.