3.3 Unemployment

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12 Terms

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Unemployment

Situation where people are willing and able to work, and actively seeking employment but are unable to find work

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Unemployment Rate Formula

Total Unemployed/Total Labor Force *100

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Labor Force

People of working age who are seeking work or are currently working

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Cyclical Unemployment

Unemployment due to a lack of demand for goods/services in the economy (demand deficient)

Unemployment due to the fluctuations in the business cycle

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Structural Unemployment

Unemployment due to a mismatch of skills demanded and supplied

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Frictional Unemployment

Unemployment due to workers in between jobs

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Seasonal Unemployment

Unemployment due to the demand for labor in certain industries changing on a seasonal basis

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Underemployment

Refers to people of working age who have part time jobs/jobs that don’t make full use of their skills

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NRU

Natural Rate of Unemployment

  • At Ypot, UR=NRU

  • All unemployment except cyclical combined

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Costs of Unemployment BIC(GDP)

  • Crime

    • Social cost, quality of life of citizens

  • Loss of GDP

    • Inefficient allocation of resources

    • Consumers spend less, C component of GDP

  • Government Burdens

    • Less spending by consumers

    • Less income received by households

    • Therefore consumption tax + income tax revenue

    • Therefore government has to spend more budget on unemployment benefits

  • Increase in Income Inequality

    • Typically low-income households are affected the greatest by unemployment

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Limitations of UR Figure (UP)

  1. Does not include Underemployment/Discouraged Workers/Underground Economy

    • Still an inefficient allocation of resources

    • Hence UR tends to be underreported

  2. Doesn’t account for different population groups

    • Women UR > Men UR

    • UR differs for different races, genders, ages etc.

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Minimum Wage Labor Market

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