Econ - Chapter 7

Creative Destruction

occurs when the introduction of new products and technologies leads to the end of other industries and jobs.

When does frictional unemployment occur?

when workers take time to search for the right jobs.

What are the major reasons for unemployment?

• Structural unemployment is caused by changes in the structure of the economy that make some jobs obsolete. • Frictional unemployment is caused by imperfect information, which leads to increased search time in the job market. • Cyclical unemployment is caused by recessionary conditions that eliminate jobs during a downturn in the business cycle.

Unemployment

Occurs when a worker who is not currently employed is searching for a job without success.

Discouraged Workers

are those who are not working, have looked for a job in the past 12 months and are willing to work, but have not sought employment in the past 4 weeks. (NOT included in labor force or unemployed)

Underemployed Workers

are those who have part-time jobs but who would prefer to work full-time. (considered employed)

Labor Force

includes people who are already employed or actively seeking work.

Unemployment insurance

is a government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed.

Natural Rate of Unemployment

is the typical rate of unemployment that occurs when the economy is growing normally. -includes frictional and structural unemployment.

Structural Unemployment

is unemployment caused by changes in the industrial makeup (structure) of the economy. • Long-term unemployment that exists even when an economy is producing at a normal rate. • "creative destruction"

Frictional Unemployment

is unemployment caused by imperfect information, which leads to increased search time in the job market. • Short-term unemployment associated with the process of matching workers with jobs. • People do not instantly take a new job, and they might not want to take the first available job. • Firms do not always hire the first applicant. • Length of frictional unemployment can vary (technology).

Cyclical Unemployment

is unemployment caused by recessions, or economic downturns (WORST KIND!). • It is the most serious type of unemployment because it means that jobs are not available for many people who want to work. • The duration of cyclical unemployment is open-ended. No one knows how long a general macroeconomic downturn might last.

Unemployment Rate

the percentage of those who would like to work who do not have jobs.