Chapter 9 (Unemployment and The Labor Market)

Unemployment

Someone who does not have a job, and wants to work but cannot find a job in the current market.

How does the BLS define unemployment?

1. Aged 16 years and older.

2. No employment during reference week.

3. Were available to work (except for temporary illness).

4. Made specific efforts to find employment during the previous 4 weeks.

Working age population

Those above 16 that are available for work (Does not include military, those in prison and people that have been institutionalized).

Labor Force Formula

Labor force=number of people employed + number of people unemployed

Labor Force Participation Rate Formula

(Labor Force)/(Working Age Population)  × 100%

Unemployment Rate Formula

Unemployment Rate=  (Number of Unemployed )/(Labor Force)  × 100%

Discouraged Workers

People who have looked for work in the past year but have given up because of labor market conditions.

Underemployed Workers

People who are either working less than they would like or in jobs below their skill level.

Then what about for someone who does not have a job and does not want to work? Is that person unemployed?

No

Labor Force

Those who are in the working age population and are either employed or unemployed.

How does labor force participation rate behave during a recession?

Falls, because ppl give up looking for work or simply dropped out because they can’t find a job!

natural rate of unemployment

The normal level of unemployment that persists in an economy in the long run (usually 4%-5%).

Examples of natural rate of unemployment include:

• Frictional unemployment - A software engineer quits their job in Austin to move to Seattle for better opportunities. They're unemployed for 6-8 weeks while job hunting and interviewing. This is voluntary and temporary.

• Structural unemployment - Coal miners in West Virginia lose jobs as the economy shifts toward renewable energy. Their skills don't easily transfer to growing industries, so they remain unemployed longer while retraining or relocating.

Frictional unemployment

Caused by workers who are changing location, job or career. It is natural and healthy to have frictional unemployment

Structural unemployment

is caused by a mismatch between the skills workers can offer and the skills in demand.

Real wage or classical unemployment

Results from wages being higher than the equilibrium level.

Cyclical unemployment

It is caused by short-term economic fluctuations in the economy.

Real wage or classical unemployment

results from wages being higher than the equilibrium level.

Efficiency Wage

Deliberately set above the market rate to increase productivity.

Unemployment Insurance

Is money paid by the government to people who are unemployed. Lasts for 6 months!

Labor Unions

Are groups of employees who bargain with their employer(s) over salaries and work conditions.

Minimum Wage

Is the lowest wage that a firm is legally allowed to pay its workers.

What does the demand of labor show us?

Firms will want to hire more labor when wages are lower and less labor when wages are higher

What does the supply of labor show us?

The labor supply curve illustrates the number of hours of work that people are willing to provide at various wage rates. The higher the wage, the more hours laborers are eager to work.

Ex: At $30/hour, workers collectively offer 10,000 hours; at $40/hour, they offer 13,000 hours.

When does unemployment occur?

When the wage rate is higher than the equillibrium wage.

What features occur when there is unemployment in the labor market?

• Workers are willing to provide more labor than firms are willing to hire.

• The labor market has a surplus of workers.

Good being traded

labor

Price of labor

Wage

Demand for labor

Firms wanting to hire more labor

Supply for labor

individuals looking for jobs

Why might the official unemployment rate underestimate joblessness?

It doesn’t include discourage workers