Slides 11

Three Types of Unemployment

Frictional: Unemployment that is due to the time it takes for employers to search for workers and for workers to search for jobs. Structural: Unemployment that occurs because wages don't fall to bring labor demand and supply into equilibrium. Cyclical: Unemployment that is due to a temporary downturn in the economy.

What causes frictional unemployment?

1. Job-search resources 2. Skills mismatch 3. Unemployment insurance and other income support

Institutional Causes of Structural Unemployment

1. Unions keep wages high for some workers. 2. Job protection regulations make it hard to fire workers. 3. Minimum wage laws prevent wages from falling to the market-clearing wage.

The town of Fincastle has 250 working-age adults, of whom 200 are employed and 25 are unemployed. The unemployment rate is

11%

The town of Fincastle has 250 working-age adults, of whom 200 are employed and 25 are unemployed. The labor force participation rate is.

90%

Efficiency Wages: A Cause of Structural Unemployment

An efficiency wage is a higher wage paid to encourage greater worker productivity.. Efficiency wages cause structural unemployment but can also lower total labor costs.

Protecting Yourself from the Harmful Effectsof Unemployment

Don't postpone your job search. Build up a nest egg. Build new skills. Look for new opportunities while you are still employed. Use your network to find a new job. Avoid long-term unemployment.

Labor Market Dynamics

Each month, more than 5 million people in the U.S. start a new job. Each month, over 5 million people leave jobs in the U.S. Businesses hire new people and eliminate jobs on a daily basis. A dynamic labor market makes it easier for people to find new jobs.

Aiden recently graduated from college without a job.He hasn't started looking for one yet, but he plans tostart searching for a job next month after he hasmoved back to his family's house and had time tocatch up with his friends.

Not in the labor force

What causes structural unemployment?

Structural unemployment occurs when wages are unable to fall to the market-clearing wage. This creates labor surplus. In a well-functioning labor market, equilibrium occurs where labor supply equals labor demand and nonstructural unemployment exists.

Review: Dynamics of the Labor Market (1 of 2)

The U.S. labor market is very dynamic with new jobs being added and existing jobs being eliminated every day. People also move in and out of jobs and in and out of the labor market every day. While most unemployment spells are short, discrimination and skill loss make it hard for some people to find work. Alternative measures of unemployment take into account marginally attached workers, the underemployed, and involuntary part-time workers.

How is the labor force participation rate calculated?

The labor force participation rate is the percentage of the working-age population who are either employed or unemployed. Labor force participation rate=Employed + Unemployed/Working age population * 100

Supply and Demand in the Labor Market

The labor market is an input market. Businesses demand labor. Households supply labor. The market price is the wage rate. Equilibrium is where the supply of labor equals the demand for labor.

Who is counted in the labor force?

The sum of the employed and unemployed is called the labor force. If neither employed nor unemployed, a person is referred to as not in the labor force.

Economic Costs of Unemployment

The unemployed often end up with lower wages and worse career opportunities. Hysteresis occurs when a period of high unemployment leads to a higher equilibrium unemployment rate. High unemployment means that the government receives lower tax revenues but spends more.

Employment and Unemployment

The unemployment rate indicates the state of the economy.

How is the unemployment rate calculated?

The unemployment rate is the share of the labor force who are unemployed. Unemployment rate = unemployed/Labor force * 100

Review: Measuring Unemployment

The working-age population is broken down into those in the labor force and those not in the labor force. Labor force participation rates effect GDP growth rates. The unemployment rate is taken as a percentage of the labor force. The unemployment rate differs across different groupsand different countries. The equilibrium unemployment rate is the long-run unemployment rate to which the economy tends to return.

Review: Dynamics of the Labor Market (2 of 2)

There are three types of unemployment: frictional, structural, and cyclical. Frictional unemployment occurs when there are enough jobs for everyone, but it takes time for workers and employers to find each other. Structural unemployment occurs when there are not enough jobs for everyone, and the wage rate is prevented from falling to the market-clearing wage. Frictional unemployment and structural unemployment explain why the equilibrium unemployment rate is above zero.

Who is counted in labor market statistics?

Those age 16 or older who are not in the military or institutionalized are considered the working-age population

Social Costs of Unemployment

Unemployment is isolating and painful. Long-term unemployment is associated with worse outcomes. Life expectancy, morbidity, clinical depression Children whose parents experience unemployment suffer. Worse academic, mental, and future economic outcomes

Key Takeaways

We have official measures for the labor market. Alternative measures account for the underemployed, marginally attached, and involuntarily part time. Unemployment has three main causes. There are economic and social costs associated with unemployment.

Alternate Measures of Unemployment

We typically hear about the official unemployment rate(U3). Other measures include the following: Marginally attached: Someone who wants a job, has looked in the past year, but isn't actively seeking work. Underemployed: Someone who is working but wants more hours or whose job isn't adequately using their skills. Involuntarily part time: Someone who is working part-time but wants full-time work.

Who is counted as employed?

Who is counted as employed?

Netanya owns a consulting business. During a severe economic downturn, she has to fire several analysts. Netanya's analysts are considered.

cyclically unemployed

Louise opened her own Etsy shop while she finished her final year of college. She has time to commit only five hours per week to the business. Louise is considered...

employed

Indeed.com improves its algorithms so that jobseekers can more easily find jobs that match their skills.This will likely reduce

frictional unemployment

Boris just finished an economics degree and wants to live in Washington, D.C., where many job openings match his skills and education. He moves to D.C. without a job and crashes on a friend's couch while looking for one. Boris is considered

frictionally unemployed

Who is counted as unemployed?

working-aged people without jobs who are trying to get jobs are called unemployed.They must be part of the working-age population. not currently working. actively seeking work able to accept a job if it were offered.