2.3 Unemployment

Employed

People who currently have a job, either full-time or part-time

Unemployed

Anyone unemployed that is ACTIVELY searching for a job

Working Age Population

• Everyone 16+ years old

• Civilian Non-institutionalized

Labor Force

• All of the civilians in a population who are willing and able to work

= Employed + Unemployed

• 16+/working age

• Civilian Non-institutionalized: Not students, inmates, military, or retired

Labor Force Participation Rate Formula

=[(Employed + Unemployed)/(Working Age Population)]*100

Current US Labor Force Participation Rate

63% currently in US

• important to note bc it means that only a little over 200 mil people are actually in the labor force

In Labor Force but Unemployed

ACTIVELY looking for work but does not have a job

NOT in Labor Force

• People NOT looking for a job

• Retired

• Current Military

• In School but not looking for work

• Homemakers (stay at home parent)

• Off the grid: unreported income

Unemployment

• The unemployment rate is NOT a % of the total population

• use Labor Force number (employed + unemployed)

Unemployment Rate Formula

= [(# of Unemployed)/(Total Labor Force)]*100

Limitations of Unemployment Rate

1. Discouraged Workers

2. Underemployed Workers

Discouraged Workers

nonworking people who are capable of working but have given up looking for a job

(Not included in labor force, so NOT included in unemployment)

Underemployed Workers

part-time workers because they cannot find full-time jobs.

Government sees them as fully-employed!

3 Types of Unemployment

Frictional, Structural, Cyclical

Natural Rate of Unemployment

5% unemployment is “good”

includes Frictional and Structural unemployment

Frictional Unemployment

Part of natural rate of unemployment

• Choosing to be unemployed for a period of time typically due to moving to a new place or seeking new opportunities

  • Ex. New graduates

• Typically seen as “good” unemployment

Structural Unemployment

Part of Natural Rate of Unemployment

• Unemployment due to skills becoming obsolete

• These people need new training and skills

  • Ex. Blockbuster clerk

• Seen as “good” unemployment

Cyclical Unemployment

• BAD unemployment

• Unemployment due to change in the business cycle

• ANY Cyclical = HIGHER unemployment

  • ex. engineer laid-off due to budget cuts

>5% unemployment → there is defo cyclical unemployment

The Natural Rate of Unemployment (NRU)

• The rate of unemployment an economy naturally operates at

FRICTIONAL + STRUCTURAL + FULL EMPLOYMENT

• Usually ~5% but currently at ~4.3% (source Federal Reserve)

Anthony, a school teacher, is not working during his two-month summer break.

Employed; teachers are on year-long contracts!