Chapter 11: Unemployment and Labor Force Participation

MACRO exam 3

Equation for Actual unemployment

AU= Frictional + Structural + Cyclical

Unemployed Workers

An adult __without__ a job __but__ is looking for work

\-they are willing and able to work

\-unable to find a job

\--contains discouraged workers/underemployment

Unemployment rate

(its rate=multiple by 100 to get to %)

__UR= # of unemployed / labor force__

To be **counted as unemployed**, a person must meet these criterias:

\-16 years or older

\-Not institutionalized ( meaning in prison)

\-A civilian (not in military)

\-__Is looking for work__

Which **groups do the labor force** contain?

Employed and unemployed

7 million people were unemployed in the US, and 153.2 million were employed. how would you caculate this problem and **find the unemployment rate??**

\-__firs__t , you would add 7 mill and 153.2 mill total to → 160.2

\-__second,__ is think about the equation (# of unemployed / size of labor force) → 7 divided by 160.2 times 100

what is the **answer** to the example problem **(unemployment rate)?**

4\.4%

Labor force participation rate

The % of adults in the labor force

discouraged workers

workers who have __given up__ looking for a job __but will still__ like one

\-difficult to measure because the concept is not well defined

underemployment rate

a measure that includes part time workers who would __prefer a full time__ job AND __people who would like a job but have given up looking__

Underemployment example

\-a __taxi driver with a PhD__ in chemistry who is counted as fully employed

\-if you have a __PhD in physics__ and are __working as a retail clerk__

Frictional unemployment

__Short term__ ( 0-14 weeks) unemployment caused by the ordinary difficulties of matching an __employee to employer__

Structural unemployment

__long term__ (greater than 14 weeks) unemployment caused by long lasting shock or permanently features of an economy that make it more difficult for someone to find a job

\-significant costs: loss of economic output = GDP goes down /increase in stress = suicides / decrease in well being = happiness

creative destructive

innovation and competition drive progress, which creates __new jobs and destroys old jobs__

**structural unemployment** has **significant costs** which are:

\-loss of value production/economic output (GDP goes down)

\-Increase in stress = suicides

\-Decrease in well being = happiness

**One cause** of **structural unemployment** is?

a large __economy wide shock__

minimum wage

\-a minimum wage workers must be paid

\-can cause unemployment

Union

association of workers that __bargain and negotiate__ with employers over __wages, benefits, and working conditions__

Employment At Will Doctrine

An __employee may quit__ or an __employer may fire__ at any time for any reasons

The employment at will doctrine says that employment can be terminated?

at any time for any reason

Active Labor Market Policies

policies such as __work tests, job search assistance, job retaining programs that aim to help unemployment__ workers back to work

Cyclical Unemployment

Unemployment __correlated with the business cycle__

→RECESSIONS fluated with the goods/bads. __recessions decrease and unemployment increases__

**Unemployment** increases dramatically during a **recession** for two reasons:

1) when GDP decreases (national spending decreases) →firms cut “costs” = firing employees causing unemployment to increase

2)idle labor can hurt the economy’s ability to create new jobs

Natural Unemployment Rate

Natural UE rate = structural + frictional

\*goal to remove the “noise” that comes from the business cycle

Actual Unemployment rate

Frictional + Structural + Cyclical (“Noise”)

Labor Force Participation Rate **(LFPR)**

LFPR= __labor force__ (employed + unemployed) / __adult population__ (aka entire pop.) times 100

**Labor force participation** is affected by?

life cycle effects and demographics