Macro- Unit 2- Unemployment

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What are the two other types of unemployment under structural unemployment?

-Seasonal unemployment -Technological unemployment

What does the labor force participation rate tell us and how is it calculated?

-tells us the percentage of the adult population that has chosen to participate in the labor market. -(Labor force/ Working-age population) * 100 -(Employed + unemployed/ Working-age population) *100

What does he unemployment rate tell us and how is it calculated?

-tells us who would like to be working but cannot find work. -(Number of unemployed/ Labor force) * 100 -(Number of unemployed/ Employed + unemployed) *100

To be considered unemployed,

one must be actively seeking work but unable to find it.

Those not in the labor force include:

Children Retired persons Full-time students who are not working. Those who choose not to work. Those not actively seeking work. Stay-at-home parents. Those who are institutionalized (in prison, psychiatric hospitals, and nursing homes). Military personnel (are not considered part of the possible pool of available labor because they not available for civilian jobs). Discouraged workers (those who have become so discouraged that they have given up looking for jobs).

What are the three different types of unemployment?

Frictional unemployment Structural unemployment Cyclical unemployment

Why is the unemployment rate not a perfect indicator of unemployment?' Remember- imperfect- but still very useful

It doesn't count those people who have become so frustrated that they have stopped looking for a job. Again, we call these people "discouraged workers." Someone who is working one hour a week at a part-time job is considered employed (even though that's clearly not enough money off of which to live).

Why does unemployment exist?

It takes workers time to find jobs. Minimum wage laws create a surplus of labor (which increases unemployment). Labor unions cause prices to be above equilibrium, which causes a surplus of labor and increases unemployment.

natural unemployment rate

The natural unemployment rate only counts frictional and structural unemployment. In other words, it is what the unemployment rate would be if cyclical fluctuations were removed. Full employment is the rate of unemployment that would exist if there was no cyclical unemployment. So, the natural rate of unemployment = full employment.

theory of efficiency wages.

This is the notion that firms operate more efficiently if wages are above the equilibrium level. Higher wages increase worker health, decrease worker turnover, increase worker quality, and increase worker effort. The theory of efficiency wages shows us the uselessness of minimum wages laws, which we know cause greater unemployment.

What is the reason we don't consider full employment 0%?

because of frictional unemployment. There will always be some people who leave their jobs by choice to search for other opportunities. For this reason, 0% unemployment is not possible.

Seasonal unemployment- define why it occurs and give an example

occurs because of changes in the weather or in the seasonal demand for certain products. It takes place every year and is predictable. For example, we know mall Santas will be out of work after December 25.

working-age population

he total number of people aged 16 years and older who are not in jail, not in institutionalized care, and not in the U.S. armed forced.

What is considered full employment?

if our unemployment rate is below 5%, we consider ourselves to be at full employment.

When does unemployment rate have a tendency to do during a recession? why?

rise drastically A recession is when real GDP is decreasing. If real GDP is decreasing, we are not making as much stuff. If we are not making as much stuff, we do not need as much labor, so unemployment goes up.

Technological unemployment- define why it occurs and give an example

s unemployment that occurs when workers are replaced by machines. This is sometimes called automation. The introduction of the robotic assembly line is a good example of technological unemployment.

Being employed means...

that one has a job or is temporarily absent from one's job.

What are the two groups working- age population is broken down into to measure unemployment.

the labor force and those not in the labor force.

Structural unemployment is the most permanent type of unemployment (typewriter repairman). What should workers do to escape structural unemployment?

they must work to change and/or improve their skill set through job-training, additional schooling, etc.

Labor force

those people who are employed and unemployed. Labor force= employed + unemployed

Cyclical unemployment

unemployment that is related to swings in the business cycle (increases and decreases in real GDP). In other words, it's tied to how the economy is doing: If there is a recession and sales are low, cyclical unemployment goes up. If there is an expansion and sales are high, cyclical unemployment goes down.

Structural unemployment

unemployment that occurs when there is less demand for a worker and his skills. In other words, the skills of particular workers do not meet the needs of employers.

Frictional unemployment

when a worker is between jobs or looking for his first job. This is mostly two groups of people: People who choose to leave their job to look for other opportunities. People who have just graduated from high school or college and are looking for their first job.


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