Chapter 29

Unemployment

Key Termslabor forceunemployment ratelabor-force participation ratenatural rate of unemploymentcyclical unemploymentdiscouraged workersfrictional unemployment

structural unemploymentjob searchunemployment insuranceunioncollective bargainingstrikeefficiency wages

Unemployment

How is it measured?Who measures it?

Central Department of Statistics and Information

www.cdsi.gov.sa

Total PopulationNot Adult PopulationAdult Population 15+

Not in Labor ForceLabor Force

EmployedUnemployed

Population30

Saudis20

Adult Saudis15+

14

Labor Force5.3

Employed4.7

Labor ForceParticipation Rate

Labor Force÷ Adult Saudis5.3 ÷ 14 = 37.9%

Unemployment Rate

Unemployed ÷ Labor Force0.6 ÷ 5.3 = 11.7%

Unemployed 0.60.6

Employedpaid employees

work in own businessunpaid workers in family business

full-time and part-timejobs but temporary absence

Unemployednot employed

availabletried to find a job in the last four

weekswaiting to be recalled from layoff

Discouraged Workers

People who would like to work but have given

up looking for a job

Not in Labor Forcenot employed or unemployed

discouraged workersfull-time student

homemakerretiree

Unemployment Rate

The percentage of the labor force that is

unemployed

Adult Population

Population age 15 and older

Labor-Force Participation Rate

The percentage of the adult population (15+)

that is in the labor force

Employed 4,717,127

Unemployed 622,533

Labor Force = Employed + Unemployed

5,339,660

Unemployment Rate = Unemployed ÷ Labor Force

11.7%

Not in Labor Force 8,660,340

Adult Population Age 15+ = Labor Force + Not in Labor Force

14,000,000

Participation Rate = Labor Force ÷ Adult Population

38%

Source: General Statistics Department and Information

Saudi Labor Force

Saudi Adult Population 15+ 14 million

Not in Labor Force

Unemployed

EmployedLabor ForceUnemployed + Employed

38%

62%

Employment Analysis Male Female Total

Employed 3,989,632 727,495 4,717,127

Unemployed 261,392 361,141 622,533

Labor Force 4,251,024 1,088,636 5,339,660

Unemployment Rate 6.1% 33.2% 11.7%

Adult Population 7,000,000 7,000,000 14,000,000

Participation Rate 61% 16% 38%

Employment Analysis Saudi Non-Saudi Total

Employed 4,717,127 6,011,996 10,729,123

Unemployed 622,533 10,114 632,647

Labor Force 5,339,660 6,022,110 11,361,770

Unemployment Rate

11.7% 0.2% 5.6%

ProblemsOverstate - Above actual

Cash workers

Understate - Below actualDiscouraged workers

CountryComparison

Saudi U.S China

Unemployment Rate 11.7% 7.9% 4.1%

Participation Rate 38.0% 63.3% 74.2%

Natural Rate of Unemployment

The normal rate of unemployment around

which the unemployment rate fluctuates

Cyclical Unemployment

The deviation of unemployment from its

natural rate

Unemployment

FrictionalSeasonalStructural

Frictional

Time to find a new job

Seasonal

Demand changes with the season

Structural

Too many workers

Change in demand for skills

Structural

Creative Destruction

10% a Year

Unemployment Insurance

Government program to provide income when

workers become unemployed

Unemployment Insurance

Unintended ConsequenceMoral Hazard

May prolong unemployment

Why are wages too high?

Minimum wage lawsUnions

Efficiency Wages

Minimum Wage Laws

Government sets a minimum wage that can

legally be paid

0

1,000

2,000

3,000

4,000

0 10 20 30 40 50 60

Supply

Demand

Wage

Workers

Equilibrium Wage

30 workers30 jobs

no unemployment

Minimum Wage40 workers

20 jobs20 unemployed

workers

Minimum Wage20 workersget a raise10 workers

lose job10 new

unemployed workers

MinimumWage

Efficiency Wages

Higher wages make more productive

employees

Efficiency Wages

Employee Wage Pizzas ProductivityWage per Pizza

Ali 100 5 20.0

Abdullah 200 12 16.7

Efficiency Wages

More HealthyLower TurnoverHigher Quality

More Effort