Chapter 21: Unemployment

Employed

Currently working for pay

Unemployed

Out of work and actively looking for a job

Out of Labor Force

Those who are not working and not looking for work, whether they want employment or not

Labor Force

The number of employed plus the unemployed

Unemployment Rate

The percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

Hidden Employment

People who are mislabeled in the categorization of employed, unemployed, or out of the labor force

Underemployed

Individuals who are employed in a job that is below their skills

Discouraged Workers

Those who have stopped looking for employment due to the lack of suitable positions available

Labor Force Participation Rate

The percentage of adults in an economy who are either employed or who are unemployed and looking for a job

Unemployment Rate Formula

(Unemployed people/Total force labor) x 100

Labor Force Partipation Rate

(Total labor force/Total actual population) x 100

General Range of Unemployment

4% - 6%

Unemployment Rates Based on Gender

Unemployment rates for men used to be lower than unemployment rates for women. In recent decades, the two rates have been very close, often with the unemployment rate for men somewhat higher.

Unemployment Rates Based on Age

Unemployment rates are highest for the very young and become
lower with age

Unemployment Rates Based on Race and Ethnicity

The unemployment rate for Black people is typically about twice as high as that for White people, while the unemployment rate for Hispanic people is in between

Cyclical Unemployment

Unemployment closely tied to the business cycle, like higher unemployment during a recession

Implicit Contract

An unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong

Efficiency Wage Theory

The theory that the productivity of workers, either individually or as a group, will increase if the employer pays them more

Adverse Selection of Wage Cuts Argument

If employers reduce wages for all workers, the best will leave

Insider-Outsider Model

those already working for the firm are “insiders” who know the procedures; the other workers are “outsiders” who are recent or prospective hires

Relative Wage Coordination Agreement

Across-the-board wage cuts are hard for an economy to implement, and workers fight against them

Natural Rate of Unemployment

The unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

Frictional Unemployment

Unemployment that occurs as workers move between jobs

Structural Unemployment

Unemployment that occurs because individuals lack skills valued by employers

When is the Economy at Full Employment

When the actual unemployment rate is equal to the natural unemployment rate

Natural Rate of Unemployment

4.5% - 5.5%