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Understanding Unemployment Types and Causes AP Economics Module

Explore the causes and categories of unemployment, including frictional and structural unemployment, and factors affecting the natural rate of unemployment. Learn about the implications of changes in labor force characteristics, market institutions, and government policies.

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Understanding Unemployment Types and Causes AP Economics Module

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  1. AP Economics Mr. Bernstein Module 13: The Causes and Categories of Unemployment February 19, 2014

  2. AP EconomicsMr. Bernstein The Causes and Categories of Unemployment • Objectives - Understand each of the following: • The three types of unemployment and their causes • The factors that determine the natural rate of unemployment

  3. AP EconomicsMr. Bernstein Frictional Unemployment • Millions of jobs are destroyed every month, and new ones are created • Workers change jobs seeking better lifestyle or $$ • There may be time lags between jobs

  4. AP EconomicsMr. Bernstein Structural Unemployment • Arises from structural changes in labor market • Demand for some skills declines • Geographic distribution of jobs changes • Mergers and/or foreign competition • Characterized by persistent surplus of workers • Minimum wage floors • Labor unions • Efficiency wages • Side effects of public policy (ie unemployment insurance)

  5. AP EconomicsMr. Bernstein Structural Unemployment

  6. AP EconomicsMr. Bernstein Natural Rate of Unemployment • Natural Unemployment = Frictional + Structural Unemployment • Cyclical Unemployment are deviations from the natural rate due to business cycle • Actual Unemployment = Natural Unemployment + Cyclical Unemployment

  7. AP EconomicsMr. Bernstein Changes in the Natural Rate of Unemployment • Natural Rate in US is thought to be a bit <5% • What changes Natural rate? Consider… • Changes in Labor Force characteristics (ie age) • Changes in Labor Market Institutions (ie role of unions or rise of efficient, online job search sites) • Changes in government policies (ie subsidies, training programs)

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