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Unemployment

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  1. Unemployment Chapter 6

  2. Measuring Unemployment • An economy with unemployment is wasting resources and producing at a point inside the production possibilities frontier. A.

  3. Labor Force • Individuals age 16 and over, excluding those in the military, who are either employed or actively looking for work. • Employed • Unemployed – actively seeking employment

  4. Unemployment Rate • The ratio of the number of unemployed persons to the number of persons in the labor force. • U = # of unemployed X 100 Labor force

  5. The ratio of the labor force to the population age 16 and over; expressed as a percentage Increase in participation rate 67% Labor fore participation and job creation depend on each other. A strong economy leads to more people entering the job market thus slowing down the reduction in the unemployment rate Labor force participation

  6. Labor Force Participation • Increase opportunities for women • Increase in minorities • Opportunities for workers to take early retirement • Better healthcare • Government aid • Individual attitudes

  7. Unemployment rates • Unemployed means • At least 16 years old • Without work • Actively looking for a job

  8. Problems with rate • Part time employees considered employed • Institutionalized individuals not in labor force • Underemployed • Discouraged workers • Underground economy

  9. Types of unemployment • Frictional unemployment • Seasonal unemployment • Structural unemployment • Cyclical unemployment • Structural and cyclical unemployment are usually of most concern, because they represent involuntary unemployment

  10. Frictional Unemployment • Unemployment associated with entering the labor market and switching jobs. • Workers have the necessary skills for the jobs available

  11. Seasonal Unemployment • Unemployment that can be predicted to recur periodically, according to the time of year

  12. Structural unemployment • Unemployment caused by a mismatch between a person’s human capital and that needed in the workplace • Employees do not have the necessary skills for the jobs available • Change in the goods demanded in the economy • Human capital

  13. Cyclical • Unemployment from a downturn in the business cycle that affects workers simultaneously in many different industries. • A systematic disorder • Recessions are temporary

  14. Unemployed workers may qualify for state provided payments Fire workers do not Contributes to higher unemployment Actively seeking employmetn Unemployment Insurance

  15. Natural Rate of Unemployment • The minimum sustainable level of unemployment; associated with zero cyclical unemployment. • Tendency for unemployment to settle at a few percentage points above zero, due to the inevitable presence of seasonal, frictional, and structural unemployment • 4%

  16. Full employment • 100 percent less the natural rate of unemployment • Everyone who wants a job has a job • Yet some people still unemployed