Flashcards Macroeconomics Chapter 7: Unemployment

Unemployment

When a worker who is not currently employed is searching for a job without success

Unemployment rate

The percentage of the labor force that is unemployed (Unemployment / Labor Force x 100)

Structural unemployment

Unemployment caused by changes in the industrial makeup of the economy

Creative destruction

When the introduction of new products and technologies leads to the end of other industries and jobs

Joseph Schumpeter

The economist who coined the term 'creative destruction' to describe the process of economic evolution

Ways to reduce structural unemployment

Workers must retain, reeducate, relocate, or change expectations about work and pay; the government can help with training programs or relocation subsidies

Luddites

Nineteenth-century English textile workers who destroyed automatic looms to protect themselves from structural unemployment

Frictional unemployment

Unemployment caused by delays in matching available jobs and workers

Information availability

Any factors that shorten job searches also decrease frictional unemployment

Government Policies

any factors that lengthen the job search process increase frictional unemployment

Cyclical unemployment

Unemployment caused by economic downturns

Natural rate of unemployment

Typical unemployment rate that occurs when the economy is growing normally

Full-employment output

Output by an economy with no cyclical unemployment

Work-eligible population

Civilian, non-institutional, and age 16 or older

Labor force

People who are employed or actively seeking work

Labor force participation rate (LFPR)

The percentage of the work-eligible population that is in the labor force (Labor Force / Work - Eligible Population x 100)

Shortcomings of Using the Unemployment Rate

It can be too narrow, does not reveal who is unemployed, and is a lagging indicator

Discouraged workers

Those who are not working, have looked for a job in the past 12 months and are willing to work, but have not sought employment in the past four weeks

Underemployed workers

Those who have part-time jobs but would prefer to work full-time

Leading indicator

Helps us predict what's coming and will usually change before the economy does

Lagging indicator

Usually changes after the economy as a whole changes, so it doesn't have much predictive power