econ 202: chapter 6
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Chapter 06:Unemployment
Copyright © 2013 by The McGraw-Hill Companies, Inc !ll rights reser"e# McGraw-Hill$Irwin
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Unemployment
• We recognize unemployment as oneof the two major macroeconomic
problems we can face. – When is a person “unemployed”?
– What are the costs of unemployment?
–What is an appropriate goal for “fullemployment”?
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Learning Objecties
• !"#!$. %now how unemployment ismeasured.
• !"#!&. %now the socioeconomic costsof unemployment.
• !"#!'. %now the major types of
unemployment.• !"#!(. %now the meaning of “full
employment.”
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)he Labor *orce
• Labor force: all persons age $" and oerwho are either employed or actielysee+ing wor+.
– Out of the labor force: those not wor+ing andnot actiely see+ing employment.
Totalpopulation
Out of thelabor force
Labor force
Employed
Unemployed
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)he Labor *orce
• )he labor force comprises about half thepopulation.
•
)he size of the labor force has morethan doubled since $,"! due topopulation growth.
• )he labor force participation rate
increased rapidly due to the increasingnumbers of women joining the laborforce.
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-mpact of Labor *orce
rowth• )he labor force growsdue to populationgrowth andimmigration/ adding &million new wor+ersyearly.
• )he 001 pushesoutward/ increasing thecapacity to producegoods and serices. – We need to create &
million new jobs for thee2panding labor force/or we end up at point F inside the 001.
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Unemployment
• Unemployment: the inability oflabor force participants to 3nd jobs.
• )his is an idled resource/ so theeconomy operates inside its 001/ inthe ine4cient zone.
– Okun’s Law: a $ percent increase inunemployment results in a & percentdecrease in 50.
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6easuring Unemployment• 7 person is counted as unemployed if
he or she is not wor+ing but is actielysee+ing wor+.
• Unemployment rate: the proportionof the labor force that is unemployed8
14!"#000 "010 unemployment rate $ $ %&6' 1#(!!%000
)umber of unemploye*people
Unemployment rate $ Labor force
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92ercise
•1alculate the unemployment rate. – :in labor force ; &!!/!!!
– :unemployed ; $!/!!!
– Unemployment rate ; 2 $!!
; @
)umber of unemploye*people
Unemployment rate $ Labor force
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5emographics of
Unemployment• )he unemployment rate is higher for
– 6en than women.
– Alac+s and Bispanics than whites. – Less educated people than higher#
educated people.
–
)eenagers than people older than them.
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5uration of Unemployment
• +uration: how long does joblessnesslast?
• When the economy is growing/ both theunemployment rate and the durationdecrease.
•
When the economy stagnates or goesinto decline/ both the unemploymentrate and the duration increase.
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Ceasons for Unemployment• Dob leaers.
– )hey Euit to see+ other
opportunities.
• Dob losers.
– )hey are laid oF or3red.
• Gew entrants.
– *irst#time job see+ers.
• Ceentrants.
– )hey had left the laborforce but hae returned.
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5iscouraged Wor+ers
• *ormer job see+ers who hae gienup and no longer actiely see+
employment. – )hey drop out of the labor force.
– )hey are no longer counted in
unemployment statistics.
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Underemployment
• 0eople who want full#time wor+ intheir 3eld but can 3nd only part#time
wor+ or wor+ at jobs below theircapability.
– )hey are counted as employed.
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)he Buman 1osts
of Unemployment• Loss of income.
•
Loss of con3dence.• Hocial stress.
• 5eclining health.
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5e3ning *ull 9mployment
• *ull employment is not the same as zerounemployment.
• )here are four categories ofunemployment. – Heasonal unemployment. – *ictional unemployment. – Htructural unemployment. – 1yclical unemployment.
• 7t full employment/ all of these e2iste2cept cyclical unemployment.
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5e3ning *ull 9mployment
• ,easonal unemployment: unemployment due to seasonal
changes in employment.• )he Labor 5epartment reports
seasonally adjusted unemployment
rates for eery month. – Unemployment data e2clude the eFects
of seasonal unemployment.
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5e3ning *ull 9mployment
• Frictional unemployment: briefperiods of unemployment e2perienced
by people moing between jobs orinto the labor mar+et.
– 7deEuate demand for frictionallyunemployed.
– )hey hae s+ills reEuired for e2isting jobs.
– )he job search period is relatiely short.
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5e3ning *ull 9mployment
• ,tructural unemployment: unemployment caused by a mismatch
between the s+ills of jobsee+ers and the reEuirements of aailable jobs.
– 1aused by a change in the mar+et for the
product made/ or – I a change in the technology or process by
which the goods is made.
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5e3ning *ull 9mployment
• Cyclical unemployment: unemploymentcaused by a decline in economic actiity.
–
)he demand for products decreases andwor+ers get laid oF.
– Cesults in an e2cess supply of wor+ers for theremaining aailable jobs.
–
)he economy must grow at least as fast as thelabor force to aoid cyclical unemployment.
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5e3ning *ull 9mployment
• 9conomists thin+ that we are near fullemployment when rising prices signal thatwe are nearing production capacity J that
is/ the 001.• -n.ationary .ashpoint: the rate of
output at which inKationary pressuresintensify.
•
Full employment: the lowestunemployment rate compatible with pricestability zero cyclical unemployment.
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5e3ning *ull 9mployment
• Full employment: the lowestunemployment rate compatible withprice stability zero cyclicalunemployment. – Aoth frictional and structural
unemployment e2ist at full employment.
•
*ull employment ranges between ( and" percent unemployment/ depending onthe size of structural unemployment.
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1hanges in Htructural
Unemployment• 1hanges in structural unemployment come
from changes in society itself. –
rowing numbers of youth and women. – 1hanges in transfer payments for the jobless. – 1hanges in products demanded by consumers. – 1hanges in how products are made.
• 5uring periods of change/ structuralunemployment increases.
• When changes are fully absorbed/ structuralunemployment decreases.
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)he “Gatural” Cate of
Unemployment• )atural rate of unemployment:
long#term rate of unemployment
determined by structural forces inlabor and product mar+ets.
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)he 9conomy )omorrow
• Outsourcin/ obs: relocation of production to other countries to ta+e adantage of lowerproduction costs. – 1heaper labor.
– Low#cost/ high#speed communications.
• 7 two#way street.• *oreign producers also outsource jobs from their countries when they build
production facilities in the United Htates.
– 6ore jobs are “insourced” this way than we outsource.
• 0roduction possibilities e2pand/ not contract/ withoutsourcing.
• 7s world trade e2pands/ we will see more outsourcingJ and insourcing J in the economy tomorrow.
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Ceisiting the Learning
Objecties• !"#!$. %now how unemployment is
measured.
– )he unemployed are part of the laborforce who are not wor+ing but who areactiely see+ing wor+.
– -t is usually e2pressed as theunemployment rate/ the ratio ofunemployed to the labor force.
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Ceisiting the Learning
Objecties• !"#!&. %now the socioeconomic costs
of unemployment. –
O+unMs Law estimates there is a &@ declinein output for eery $@ increase inunemployment.
– )he human costs of unemployment includenot only 3nancial losses but also social/physical/ and psychological costs.
– 6inorities/ teens/ and the less educatedhae higher rates of unemployment.
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Ceisiting the Learning
Objecties• !"#!'. %now the major types of
unemployment. – Heasonal8 people who wor+ part of a year/ in
season/ but are unemployed at other times. – *rictional8 people who leae a job to pursue
better opportunity elsewhere. – Htructural8 people who lose their job when
demand for a product declines or when there
are major changes in how the product isproduced. – 1yclical8 people who lose their job due to an
oerall decline in demand J that is/ a recession.
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Ceisiting the Learning
Objecties• !"#!(. %now the meaning of “full
employment.” – )he lowest unemployment rate compatible
with price stability. – Nero cyclical unemployment.
– *rictional and structural unemploymente2ist.
– 9stimated to be in the range of ( to "percent unemployment/ depending onstructural factors.
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