Macroeconomics: Business Cycles, Employment, and Unemployment

Business Fluctuations

• Focus on short-run movements in real GDP around its long-run trend.
• Previously emphasized long-run economic growth (considers periods of tens or hundreds of years).

Employment, Unemployment, and Labor Force Participation

• Topics covered:
  • Measurement methods for employment and unemployment.
  • Different types of unemployment.
  • Impact of various institutions on workforce decisions.

U.S. Unemployment Trends

• Generally, the unemployment rate decreases during expansions and increases during recessions.
  • Historical data illustrates this cyclical nature visually.

Measuring Unemployment and Labor Force Participation

• Unemployed Workers: Adults (16+) who are non-institutionalized, actively seeking work but not employed.
• Employed Workers: Adults (16+) with jobs who are non-institutionalized.
• Labor Force: Composed of individuals who are either employed or unemployed.
• Individuals not counted in the labor force include stay-at-home parents and retirees.
• Bureau of Labor Statistics (BLS) measures these statistics.

Unemployment Rate Calculations

• Unemployment Rate (UR):
  • Formula:
    ( UR = \frac{Unemployed}{Unemployed + Employed} \times 100 )
• Labor Force Participation Rate (LFPR):
  • Formula:
    ( LFPR = \frac{Unemployed + Employed}{Adult Population} \times 100 )

Discouraged Workers & Underemployment

• Discouraged Workers: Those who wish to work but have stopped searching due to perceived lack of job availability.
• Underemployed Workers: Individuals working in jobs that do not utilize their skills fully or who desire full-time work but are in part-time positions.

Types of Unemployment

• Frictional Unemployment:
  • Short-term unemployment arising from the challenges of matching job-seekers with employers.
  • Solutions include improving access to job information.
• Structural Unemployment:
  • Long-term and persistent due to significant shifts in the economy, such as technological changes, globalization, etc.
  • Often worsened by economic shocks and rigid labor markets.
• Cyclical Unemployment:
  • Occurs due to economic downturns and decreases during expansions.

Effects of Minimum Wage & Labor Union Influence

• Higher minimum wages may cause increased unemployment, particularly among unskilled or less experienced workers.
• Labor unions push for higher wages but can restrict job openings due to increased labor costs for employers.

Employment Protection and Rigidities

• Employment protection laws can provide security for workers but may also hinder flexibility in hiring and lead to higher unemployment rates among vulnerable groups.
• Stronger protections can result in longer spells of unemployment.

Remediation Policies for Structural Unemployment

• Potential solutions to counter structural unemployment include:
  • Job retraining programs.
  • Job search assistance services.
  • Employment bonuses for hiring.

Conclusion

• The unemployment rate, despite certain limitations, remains a key indicator for assessing labor market performance. Other metrics can provide valuable supplementary insights into employment health.