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  1. Unemployment

  2. Definition of unemployment How to measure unemployment Types of unemployment Impacts of unemployment

  3. Definition of unemployment • The state of being without any work both for an educated & uneducated person, for earning one's livelihood is meant by unemployment. • Unemployment is defined as a situation where someone of working age is not able to get a job but would like to be in full-time employment. • Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work. 

  4. Definition of unemployment How to measure unemployment Types of unemployment Impacts of unemployment

  5. Labor Force Statistics 0 BLS divides population into 3 groups: • employed: paid employees, self-employed, and unpaid workers in a family business • unemployed: people not working who have looked for work during previous 4 weeks • not in the labor force: everyone else The labor forceis the total # of workers, including the employed and unemployed.

  6. Basically, some people are considered “employed” if they’re working. • Some people are “unemployed” if they aren’t working but want to be. • Some people are “not in the labor force” if they aren’t working and aren’t trying to find a job. • Many variations of the unemployment rate exist with different definitions concerning who is an "unemployed person" and who is in the "labor force.“

  7. = 100 x u-rate # of unemployed labor force Labor Force Statistics 0 Unemployment rate(“u-rate”): % of the labor force that is unemployed CHAPTER 20 UNEMPLOYMENT

  8. Definition of unemployment How to measure unemployment Types of unemployment Impacts of unemployment

  9. BREAKING DOWN 'Unemployment’ • While the definition of unemployment is clear, economists divide unemployment into many different categories. The broadest two categories of unemployment are voluntary and involuntary unemployment. • When unemployment is voluntary, it means that a person has left his job willingly in search of other employment. • When it is involuntary, it means that a person has been fired or laid off and now must look for another job.

  10. Frictional Unemployment • Frictional unemployment arises when a person is in-between jobs. After a person leaves a company, it naturally takes time to find another job, making this type of unemployment short-lived. It is also the least problematic from an economic standpoint. There is always likely to be some frictional unemployment in an economy as people take time to find a job suited to their skills.

  11. Cyclical Unemployment • Cyclical unemployment comes around due to the business cycle itself. Cyclical unemployment rises during recessionary periods and declines during periods of economic growth. For example, the number of weekly jobless claims in the United States has slowed in the month of June, as oil prices begin to rise and the economy starts to stabilize, adding jobs to the market.

  12. Structural Unemployment • Structural unemployment comes about through technological advances, when people lose their jobs because their skills are outdated. Firms demand different skills from what is offered by the supply side.

  13. Seasonal unemployment • In certain regions (or jobs), unemployment may be seasonal e.g. unemployment in the beach coast area rises in winter when there are no tourists. Also agriculture „suffers“ of seasonal unemployment

  14. Real Wage Unemployment / Classical Unemployment • This occurs when wages are artificially kept above the equilibrium. For example, powerful trades unions or minimum wages could lead to wages above the equilibrium leading to an excess supply of labour 

  15. unemployment W S actual wage W1 WE D L Explaining Classical Unemployment 0 Occurs when wageis kept above eq’m. Three reasons for above-equilibrium wages include minimum wage laws, unions, and efficiency wages. CHAPTER 20 UNEMPLOYMENT

  16. Cyclical Unemployment vs. the Natural Rate 0 There’s always some unemployment, though the u-rate fluctuates from year to year. The natural rate of unemployment • the normal rate of unemployment around which the actual unemployment rate fluctuates • the level of unemployment when the labour market is in equilibrium. It is the difference between the labour force and those willing and able to accept a job at going wage rate. It consists of frictional and structural unemployment. cyclical unemployment • the deviation of unemployment from its natural rate; associated with business cycles

  17. U.S. Unemployment Since 1960 0 Unemployment rate Natural rate of unemployment

  18. Definition of unemployment How to measure unemployment Types of unemployment Impacts of unemployment

  19. Costs of unemployment • There are individual, social and socio-political costs of unemployment • The economic and social costs of unemployment include personal costs (lost income), costs to government (lost tax revenue) and costs to society in general (social problems, lost GDP).

  20. Loss of earnings to the unemployed. Unemployment is one of the biggest causes of poverty • Potential homelessness. Loss of income can leave people without sufficient income to meet housing costs. Rises in unemployment often exacerbate the rates of homelessness. • Harms future prospects. Those who are unemployed will find it more difficult to get work in the future (this is known as the hysteresis effect)

  21. Stress and health problems of being unemployed. Amongst studies of unemployed men, signs of depression, mental anxiety, and health problems are noticeably higher. • Increase in social problems. Areas of high unemployment (especially youth unemployment) tend to have more crime and vandalism. It can lead to alienation and difficulties in integrating young unemployed people into society.

  22. Increased government borrowing. Higher unemployment will cause a fall in tax revenue because there is fewer people paying income tax and also spending less (hence lower VAT). Also, the government will have to spend more on unemployment and related benefits. The government doesn’t just pay unemployment benefit, but a family who has unemployment will be more likely to receive housing benefit and income support.

  23. Lower GDP for the economy. High unemployment indicates the economy is operating below full capacity and is inefficient; this will lead to lower output and incomes. The unemployed are also unable to purchase as many goods, so will contribute to lower spending and lower output. A rise in unemployment can cause a negative multiplier effect. • Political instability. The period of mass unemployment in the 1930s led to social unrest. In Germany, an unemployment rate of 6 million was an important factor in the rise of Hitler and the Nazi party.

  24. Benefits of unemployment • The primary benefit of unemployment is that people are available for hire, without being headhunted away from their existing employers. This permits new and old businesses to take on staff. • Unemployment is argued to be "beneficial" to the people who are not unemployed in the sense that it averts inflation • Full employment cannot be achieved because workers would shirk(avoid working, be lazy) if they were not threatened with the possibility of unemployment. 

  25. Thank you for attention!