Unemployment

FRICTIONAL UNEMPLOYMENT

Frictional unemployment is the unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. It includes workers who are either searching for jobs or waiting to take jobs in the near future. Examples are workers who are transitioning between jobs and students who have recently graduated.

A person can become unemployed for one of four reasons

He/she may be a new entrant or reentrant into the Labor Force 2. The person may quit a job in order to look for other employment and may register as unemployed while searching (Job leavers) 3. The person may be laid off (Job losers) 4. The worker may lose a job (fired or firm closes) (Job losers)

What is a Labor Market?

the market in which workers compete for jobs and employers compete for workers < <The function of the labor market is to match available jobs with available workers. <

There are three ways of moving out of the unemployment pool:

1. A person may be hired into a new job (Hires) 2. Someone laid off may be recalled (Recalls) 3. An unemployed person may stop looking for a job, and thus move out of the labor force (Withdrawals)

Unemployment rate =

=Unemployed /Labor force (100)

Labor force participation rate

is the percentage of the working-age population (WAP) who are members of the labor force.

The Unemployment Pool

At any point in time there is a given number (pool) of unemployed people < There are flows in and out of the unemployment pool.

CYCLICAL UNEMPLOYMENT

Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion. It is caused by the recession phase of the business cycle, that is, by a deficiency of total spending. As the overall demand for goods and services decreases, less labor is needed, so employment falls and unemployment rises.

Labor Force Participation rate =

Labor Force/ WAP (100)

NOT IN LABOR FORCE OR OUT OF LABOR FORCE

A person is considered to be out of the labor force if he or she did not work in the past week and did not look for work in the past four weeks. In other words, people who are in the working age population BUT neither employed nor unemployed are out of the labor force. Full-time students (over 16 years), unpaid homemakers, and retirees are examples of people who are out of the labor force. Following are also not in the labor force: Discouraged worker is a worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging. i.e. A worker who does not have a job and has stopped looking for employment, due to past unsuccessful attempts.

Employed

A person is employed if he or she worked full-time or part-time during the past week or is on vacation or sick leave from a regular job. Types of Workers Full-time workers are people who usually work 35 hours or more per week. Part-time workers are people who usually work less than 35 hours a week. Part-time workers can be further categorized as Part time for economic reasons and Part time for non-economic reasons

UNEMPLOYED

A person is unemployed if he or she did not work during the preceding week but made some effort to find work in the past four weeks

Labor force =

Employed + Unemployed

LABOR FORCE

Labor force is the number of people employed plus the number unemployed.

SEASONAL UNEMPLOYMENT

Seasonal unemployment is the unemployment that arises because of seasonal weather patterns. Example: Workers who are employed temporarily part time before Christmas, may not have a job after the season.

What does the unemployment rate tell us about the labor market?

The unemployment rate is a key indicator of the state of the labor market. <When the unemployment rate is high, work is hard to find, and people who do have jobs typically find it harder to get promotions or wage increases. Economic downturns and slow growth often cause higher levels of unemployment. <When the unemployment rate is low, (a "tight" labor market), jobs are secure and relatively easier to find. It is often associated with increased wages and, sometimes, improved working conditions. The

WAP=

Those in Labor Force + Not in Labor Force

TOTAL POPULATION

Total Population is the total number of people in the economy.

WORKING-AGE POPULATION

Working-age population is the total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care or in the U.S. Armed Forces. The working-age population is divided into those in the labor force and those not in the labor force.

Structural unemployment

is the unemployment that arises when changes in technology, structure of demand for consumer goods or international competition change the skills needed to perform jobs or change the locations of jobs. This category includes workers who are unemployed because: - their skills are not demanded by employers, - or they lack sufficient skills to obtain employment, -or they cannot easily move to locations where jobs are available.