ECO 231 - EXAM #3 - CH 28

Short-run Problem Unemployment

Cyclical unemployment refers to unemployment associated with the business cycle.

Long-run Problem Unemployment

The natural rate of unemployment refers to the amount of unemployment the economy normally experiences.

Unemployed

This category includes those who were not employed, were available for work, and had tried to find employment during the previous 4 weeks. It also includes those waiting to be called back to a job from which they had been laid-off.

Employed

This category includes those who worked as paid employees, worked in their own business, or worked as unpaid workers in a family member's business. You are considered employed if you work full or part time.

Not in the labor force

This category is for those individuals who do not count as employed or unemployed.

IMPORTANT!

When the labor market is in equilibrium, the only unemployment that exists is frictional unemployment (unemployment related to job search).

Unemployment Insurance

a government program that partially protects workers' incomes when they become unemployed.

Equilibrium

a situation in which the market price (wage) has reached the level at which the quantity demanded (of labor) equals the quantity supplied (of labor).

Discouraged workers

individuals who would like to work but have given up looking for a job.

Structural unemployment

is caused when something happens in the labor market, and the wage is pushed above the equilibrium wage and stays there; caused by o Minimum wage laws o Unions and collective bargaining o The theory of efficiency wages

Full Employment

the economy is at full employment when there is only frictional and structural unemployment.

Natural rate of unemployment (NRU)

the normal rate of unemployment around which the unemployment rate fluctuates.

Labor force

the number of employed plus the number of unemployed.

Labor Force Participation Rate

the percentage of the adult population that is in the labor force.

Unemployment rate

the percentage of the labor force that is unemployed. 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒 = ( 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 / 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 ) × 100

Job search

the process by which workers find appropriate jobs given their tastes and skills.

Natural rate of unemployment

the unemployment rate when the economy is at full employment.

Frictional Unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills.

Structural Unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

𝑝𝑟𝑜𝑓𝑖𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠

𝑝𝑟𝑜𝑓𝑖𝑡 = (𝑝 × 𝑞) − (𝑤 × 𝐿)