Unemployment

February 9 2017

• Unemployment is the percent of people in labor force want a job but are not working
• Labor force = unemployed + employed

Considered employed

1. Work at least one hour per month
2. Temporarily absent from work
3. Part time workers

Not in labor force

1. Children
2. Full-time students
3. Those in mental institution
4. Those incarcerated
5. Retirees
6. Suzy homemakers or stay-at-home parents
7. Military personnel
8. Those discouraged psychologically/mentally

Formula for unemployment rate = # of unemployed / total labor force x 100

• 4 to 5% = standard unemployment

Four types of unemployment

1. Frictional unemployment or temporary unemployment: “in between jobs”. Qualified workers with transferable skills but aren't working.

• ex:  high school/college students looking for a job

1. Seasonal unemployment: specific type of frictional unemployment due to time of year and the nature of job

• Ex: Santa Claus/Easter bunny impersonators

1. Structural unemployment: changes structure of labor force, makes some skills obsolete. Workers do not have transferable skills. Permanent loss of these jobs is called creative destruction.
2. Cyclical unemployment: unemployment that results from economic downturns/recession.

• As demand for goods and services falls, demand for labor falls and workers are fired.

Two types of three unemployment are unavoidable

• Frictional
• Structural
• Together they make up the natural rates of unemployment (NRU). We are at full employment if we have only the NRU.

Frictional + structural = NRU ( 4-5%) - full employment

• Full employment means no cyclical unemployment
• Okuns Law: When unemployment rises 1% above the natural rate, GDP falls by about 2%