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Define Unemployment
Occurs when a worker who is not currently employed is searching for a job without success
What are the three components to unemployment?
1) not currently employed
2) searching for a job
3) without success
2) searching for a job
3) without success
After how many weeks are they considered not looking for a job anymore?
After two weeks of not searching, they are no longer unemployed because they’re not considered searching
Is it practical to have no unemployment?
No!
What are the three types of unemployment?
1) Structural
2) Frictional
3) Cyclical
2) Frictional
3) Cyclical
Define Structural unemployment
Unemployment caused by changes in the industrial makeup (structure) of the economy. NATURAL unemployment, cannot avoid it.
What are some examples of structural unemployment?
U.S. steel industry, more automated equipment that’s safer and more efficient.
Think of the factory example, you can cut out the middle man through advances in technology.
Think of the factory example, you can cut out the middle man through advances in technology.
Define Frictional Unemployment
Unemployment caused by time delays in matching available jobs and workers. Firms don’t always hire the first guy to apply. NATURAL unemployment, cannot avoid it.
Give some examples of frictional unemployment
Worker loses his job at burger king, same time McDonalds is hiring. It takes time for the worker to search for a new job and it takes time for the company to decide how many and which people to hire.
Define Cyclical Unemployment
Unemployment caused by economic downturns. Can somewhat avoid, NOT NATURAL. Unhealthy economy, means people who want to work cant because there aren’t jobs available.
What is the worst kind of unemployment?
Cyclical
What are the signs for all three unemployment’s?
Structural = +
Frictional = +
Cyclical = +,-, or 0
Frictional = +
Cyclical = +,-, or 0
Who makes up the labor force? TQ
Labor Force = Employed + Unemployed
What is the unemployment rate equation (u)? TQ
Unemployment rate = (# unemployed/labor force) x 100
Who is not in the labor force?
Jobless people NOT actively seeding employment, retirees, full time students, people in jail, children under the age of 16
Define natural rate of unemployment (u*)
The typical rate of unemployment that occurs when the economy is growing normally.
What two types of unemployment make up the natural unemployment rate?
Frictional, Structural
What is the natural rate of unemployment in the US?
~5%
What is Full Unemployment Output (Y*)
The output level produced in an economy when the unemployment rate (u) is equal to the natural rate of unemployment (u*)
(when u = u*)
(when u = u*)
What is Y?
The actual unemployment output.
Real GDP = Y
Real GDP = Y
What is the relationship between u and u, y and y and cyclical unemployment during a HEALTHY ECONOMY
u = u*
Y = Y*
Cyclical unemployment is zero
Y = Y*
Cyclical unemployment is zero
What is the relationship between u and u, y and y and cyclical unemployment during a RECESSION
u ; u*
Y ; Y*
Cyclical unemployment is positive
Y ; Y*
Cyclical unemployment is positive
What is the relationship between u and u, y and y and cyclical unemployment during a Super-Normal Expansion (Temporary)
u ; u*
Y ; Y*
Cyclical unemployment is negative
Y ; Y*
Cyclical unemployment is negative
Who are discouraged workers
People who want a job but get discouraged and give up looking for work.
Are discouraged workers included in the labor force/unemployed?
No, they are not in the labor force and they are NOT unemployed
Who are Underemployed Workers
Part-time workers who want full jobs
Workers who are very overqualified at their job
CONSIDERED EMPLOYED
Workers who are very overqualified at their job
CONSIDERED EMPLOYED
What are some shortcomings of the unemployment rate? Example
It lags behind economic activity.
Example: During 2007, many people lost their jobs and became DISCOURAGED, therefore the unemployment rate went down because they’re not considered unemployed. However, when things started to get better, they started looking for jobs again and then the unemployment rate went up
Example: During 2007, many people lost their jobs and became DISCOURAGED, therefore the unemployment rate went down because they’re not considered unemployed. However, when things started to get better, they started looking for jobs again and then the unemployment rate went up
Is short-run unemployment a big deal?
Not always, its long-term you have to worry about
Equation for labor force participation rate
Labor Force Participation Rate = (Labor Force/Population) x 100
Define labor force participation rate
the percentage of the population that is in the labor force
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