Module 9: unemployment

  • peak: The economy is at a temporary maximum, it is at or near full emplument and output is near the economic capacity

  • downturn: a decline in total output and employment (gdp) in one quarter

  • recession: two or more consecutive quarters (over six months) of negative economic (gdp) growth

  • trough: the economy has hit its lowest point- this can be a brief period of time or an extended period

  • recover or expansion: a period in which total output (gdp) and employment rise until a new peak is reached


causes if a buisness cycle

  1. irregular innovation: significant new product whcih have booseted the economy have been adopted an the impact has lessenedd (railroad, computers, internet)

  2. productivity changes: when productivity unexpectedly increases the economy flourishes when the productitu receds te cycle follows

  3. monetary factors : when more money is created by central banks the cost of money falls and borrowing becomes easier - the economy grwos

  4. political events: expansion occur when political events are unfavorable the economy recedes

  5. financial instability : financial bubbkes can affect the economy

  6. wars and other factors that can destabalize the economy


levels of total spending

  • durables: over 3 years of useful life

  • nondurable: less than 3 years

  • services


unemployment

who is apart of the work force

  • people looking for work

  • people with part time work who want fulltime work

  • people working for pay


the adult population consists of

  • the labor force

    • employed- currently working for pay

    • unemployed - out of work and actively looking for a job

  • not in the labor force

    • those who are not working and not looking for work whether they want employment or not


unemplyment rate:the percuentage of adult who are in the labor force but who do not have jobs

  • formula: (number of people unemplyed / number in labor force ) * 100


the bureay of labor statistics collects the emplyment data every month through a survery of people by telephone


measuring the labor force

  • under 16 or institutionalized

  • not in the labor force: those willing and able to work

  • labor force: those willing and able to work


hidden underemployment

  • part time employment (49/29 nation)

  • discouraged workers

  • underemployment: have high level of skills but there are no openings in their field


fictional unemplyment

  • people who get fired or laid off

  • recent school graduates who are searching for their first job

  • workers moving between jobs

  • search and wait unemployment


structural unemployment

  • workers skills are no longer needed by the market

  • the market demand has moved away from the skills that they have or theu have inadequate education or skills for the jobs that are no longer availavle

  • in order to gain emploument they will have to learn new skills or relocate to a part of the country where their current skills are wanted


national rate of unemployment

  • since both fictional and structural unemployment occur frequently they are both part of this

  • at the national rate of unemplyment the economy will be producting its potential real gdp

  • the national rate of unemplyment is typically viewed as between 4-4.5%

  • also known as NAIRY: the non accelerating inflation rat eof unemplyment


cyclical unemplyment

  • cyclical unemplyment is caused by changes in the business cycle

  • since household spending accounts for about 70% of gdp when consumers stop spending it has significant effect on the economy

  • buisinesses will cyt production and labor as a result of consumer cutbacks

  • more people will begin recieving unemployment benefits and other governemrnt assistance; governemtn spending for other programs may be cut contributing to more people unemplyed


costs of unemplyment

economic cost of unemplyment (okun’s law)

  • For every 1% of Cyclical Unemployment the economy will
    forgo 2% of Potential Gross Domestic Product
    Example:
    Unemployment Rate = 9.0%
    Minus Natural Rate of Unemployment = (4.0%)
    Cyclical Unemployment = 5.0%
    The economy will, according to Okun, forgo 10% of Potential
    Gross Domestic Product
    If the Gross Domestic Product is $22 trillion, the economy could
    have produced $24.2 trillion worth of goods and services (22 *
    1.1 = 24.2)
    Non-economic Costs of Unemployment