ECON1001 - Topic 4 - Unemployment & Labor Markets

Key Concepts

• Economic problems due to unemployment

• The Labor Force and defining unemployment

• Types of unemployment

• Employment Protection Legislation

Unemployment results in

• Lost incomes and production

• Long term loss of human capital

working-age population is divided in two groups:

People in the labor force and People not in the labor force

labor force

is the sum of employed and unemployed workers.

To be considered as an unemployed, the person must be
in one of these categories:

• Without work but has made specific efforts to find a job in the last 4 weeks

• Waiting to be called back to a job from which they have been laid off

• Waiting to start a new job within 30 days

Participation Rate =

Labor Force / Population

Participation Rate

efers to the total number of people or individuals over 16 years who are currently employed or in search of a job. People who are not looking for a job like full-time students,
homemakers, retirees and institutionalized are excluded

Employment Rate =

Employed / Labor Force

Unemployment Rate

1 - Employment Rate

Types of Unemployment

1. Frictional unemployment
2. Structural unemployment
3. Cyclical unemployment
4. Natural Unemployment

Frictional Unemployment

• Is the normal labor market
  turnover (resignation, retirement, layoff, etc.)*

• Frictional unemployment is a permanent and healthy phenomenon of any growing economy

Structural Unemployment

• is unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs.

• This is also referred to as being caused due to a “skill gap.”

Cyclical Unemployment

• happens due to the ups and
  downs of the economy over time

• Example: When the economy enters a recession, many jobs lost are considered cyclical unemployment as they get rehired when the economy’s expansion begins.

Natural Unemployment

• is the unemployment that arises from frictions and structural change when there is no cyclical unemployment.

• This is all frictional and structural unemployment added.

Influences on the natural rate of
unemployment

• Product market power

• Sensitivity of wage demand to unemployment

• Monopoly power of unions

• Legal methods to protect jobs

• Effect

Legal methods to protect jobs

• Severance pay requirements

• Notice requirements

• Government approval for layoffs