What is unemployment?

1. What is unemployment? • Official unemployment rates are based on a survey by the bureau of labor Statistics of 50,000 households • survey places people in one of 3 categories • employed • unemployed • not in labor force

2. Who is employed ? • Any work for profit during survey week: • full time • temporary • part time • Anyone with a job but not working during survey week because of: • vacation • illness • maternity or paternity leave • involved in an industrial dispute

3. Who is Unemployed? • Don’t have a job during survey week • Actively looking for work • Currently available for work

4. Who is not in the Labor Force? • people without a job and not looking for one • retired • disable • under 16 • frustrated

5. Measuring unemployment • problems with the current measurement • Are they actually looking for work? • How available are they? Won’t accept jobs beneath them. • Frustrated job searchers • don’t respond to survey

6. Unemployment today • The bureau’s weekly survey isn’t perfect and may actually underestimate the numbers, but it is consistent and can provide helpful information. • bureau of labor statistics

7. Unemployment to the economist • failure of the markets to clear • someone who is willing to work at the going wage cannot find work. HOW? • Wages are above market clearing • price floors - the quantity supplied of labor is greater than the quantity demanded

8. Why don’t wages seek equilibrium? • Lower wages can lead to less demand for jobs, less production and a recession • minimum wage laws • unions

9. Why is Unemployment bad? Or is it? • Harms individual who is unemployed • Reduces the size of the economic pie ( unemployed workers not contributing) • raises the need for government spending on welfare and social programs. • A 1% reduction in unemployment would add $80 billion dollars to the US economy

10. History of unemployment in the U.S. A better way to understand causes, solutions and effects • relatively low from 1950’s to 1970’s • raise in 1970’s to a peak in 1982 • back to early ranges of 4% - 5% • Historical unemployment from the Bureau of labor statistics

11. History of unemployment in Western Europe • 1970’s & 1980’s rise in unemployment like the U.S. but never came back down. • Why does unemployment in Western Europe remain high today? • To better understand we need to look at the different types of Unemployment • Frictional unemployment • Structural Unemployment • Cyclical Unemployment

12. Frictional Unemployment • unemployment that results form fluctuations of individual firms a market economy • firms succeed and fail in the market system • 1%-2% unemployment • cannot be eliminated • government can shorten duration with job search and relocation efforts

13. Structural Unemployment • laws and regulations which discourage workers form working or employers from employing • rules prohibiting layoffs • taxes on employment • generous welfare & unemployment benefits • Solution- balance social programs & employment

14. Cyclical Unemployment • unemployment resulting from many businesses having a decrease in demand or a recessions or depressions in the economy. • Low demand = low employment • solution - government create demand through spending and tax relief

15. Unemployment in Western Europe • Western Europe has generous welfare & unemployment programs • many economists feel these programs have created a generation of structurally unemployed. • No work but money & health care

16. Jobs or good jobs at good wages? • Western Europe Vs. the U.S • western Europe = high unemployment • good jobs • high wages • generous welfare and unemployment benefits • U.S. = low unemployment • lower wages & more incentive to work.

17. Wages and Unemployment • in a market economy wages are based on productivity. • If the wage in below worker productivity • finds a new job • employer increases pay to keep • If wages are above worker productivity • firm goes bankrupt • fired or laid off • salary cut