Lecture 4: Unemployment and Labor Markets

Labor Force - the sum of employed and unemployed; in order to find the real number of the labor force, we need to deduct people who are not actively working/looking for work

Unemployment - causes lost incomes and production, and has long-term loss of human capital

Unemployment Rate - equals to number of unemployed / number of labor force OR 1 - number of employment rate

Participation Rate - equals the number of labor force/population

Employment Rate - equals the number of employed/number of the labor force

Low Unemployment - is a problem; it will cause a bigger increase in inflation

Unemployed - a person is considered if: (1) without work but made efforts to find jobs in the last 4 weeks, (2) waiting to be called back after being laid off, (3) waiting to start a new job within 30 days

Frictional Unemployment - a type of unemployment where skills are transferrable but unemployed

Seasonal Unemployment - frictional unemployment that means working in certain seasons and not after

Structural Unemployment - a type of unemployment where the job is done no longer exists due to structural change in the economy; skills are not transferrable

Technological Unemployment - structural unemployment where automation replaces workers because machines do it better

Cyclical Unemployment - a type of unemployment where the loss of jobs is due to the cycles in the economy; preventable as we can spend our way out of recessions by building schools, etc.

Natural Unemployment - a type of unemployment in which every healthy economy has a little bit of frictional and structural unemployment to control inflation (4-6%; natural rate of unemployment)

Employment Protection Laws - legal methods to protect jobs by severance pay requirements, notice requirements, and government approval for layoffs