Unemployment

lecture 9

working age population

those age 16 or older who are not in the military or institutionalized (school)

• no maximum age

• no restriction on number of hours worked

• military and institutionalized individuals are not available to work

employed

working age people who are working

• employed if:

  • self employed

  • temporarily absent from a job

  • worked at least one hour for pay of some kind in the past week

unemployed

working age people without jobs who are trying to get jobs

• must be:

  • part of working age population

  • not currently working

  • actively searching for work

  • able to accept a job if it were offered

labor force

the employed PLUS the unemployed

• those in the working age population who are neither employed nor unemployed are NOT IN THE LABOR FORCE

  • ex) retired, in school, taking care of family, gave up looking for a job

labor force participation rate

(employed + unemployed)/working age population multiplied by 100

unemployment rate

the percentage of the labor force that is unemployed

• unemployed/labor force times 100

equilibrium unemployment rate

the long run unemployment rate to which the economy tends to return

• in the US- between 4 and 5 percent

Dynamic labor market

makes it easy for new people to find jobs quickly

• think of a restaurant:

  • some people leave= others take their place; can be quick but can also be a long line

• some sectors have shrunk while others have expanded

Unemployment in a dynamic labor market

job seekers:

• most job seekers already have jobs

• employers prefer candidates who are currently employed

unemployment spells

• most are short

• risk of long term unemployment (6+months) rises in economic downturns

lasting impacts of long term unemployment

• employer discriminiation

• skill loss, weaker networks

• broader implication: some stop searching

alternative measures of unemployment

• official rate: only counts active job seekers

• marginally attached: want work but aren’t currently searching

• discouraged workers: stop searching because they believe no jobs are available (counted in marginally attached)

• underemployed: part-time but want full time, or job is underusing skills

• involuntary part time: someone who wants full time work and is working part time because they haven’t found a full time job

frictional unemployment

unemployment due to the time itakes for employers to search for workers and for workers to search for jobs

factors that shape:

• efficiency of resources the employers and workers use to find each other

• alignment of skills workers have and the skills that employers desire

• unemployment insurance and other income support during unemployment

structural unemployment

unemployment that occurs because wages don’t fall to bring labor demand and supply into equilibrium

reasons:

• efficiency wages

• institutional causes

wages kept from falling by structural elements

when wage is above equilibrium:

• employers demand fewer workers

• more workers want those jobs

cyclical unemployment

unemployment that is due to a temporary downturn in the economy

efficiency wages

higher wages paid to encourage greater work productivity

instututional causes for structural unemployment

1. unions keep wages high for some workers

2. job protection regulations make it hard to fire workers

3. the minimum wage keeps wages from falling below the set minimum wage

economic costs of unemployment

• earnings lost,

• hysteresis

  • high unemployment can raise natural unemployment rate- slow job recovery

• government budget strain

  • less tax revenue + higher safety net spending

social costs of unemployment

• unemployment is isolating and painful

  • less structured

  • more stress

  • reduced spending

• worse life outcomes

  • permanent earnings losses,

  • poorer health

• children of laid off workers:

  • worse academics, mental health,

  • ultimately, lower adult earnings