principles of macroeconomics lecture 5 unemployment
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Principles of Macroeconomics
Lecture 5
UNEMPLOYMENT
Unemployment
People who are looking for work but have no jobs.
ACTIVELY LOOKING is critical to the definition.
Definitions for Unemployment Labor Force = Employed + unemployed
Unemployment Rate = number of unemployed / total labor force
Labor Force Participation Rate = labor force / population 16 and over
Definitions of Unemployment
Discouraged Workers People who left the labor force
because they could not find jobs. Underemployed
Workers holding part-time work, but prefer full-time work OR hold jobs that are far below their capabilities.
The reasons for unemployment
Frictional Unemployment
Structural Unemployment
Seasonal Unemployment
Cyclical Unemployment
Cyclical Unemployment
When GDP fluctuates, demand in the economy is not sufficient to provide jobs for all those who seek work.– Recession– Depression
Frictional Unemployment
People in between jobs.
Short period of time while changing jobs.
3% - 4% frictional employment is considered normal.
Structural Unemployment
When changes in market supply or demand conditions affect major industries or regions.
The part of unemployment that results from the mismatch of skills and jobs.
Causes of Structural Unemployment
Decline in demand for a product
Increased foreign competition
Automation of production
Increased raw material costs
Lack of labor mobility between occupations or regions.
Seasonal Unemployment
Most seasonal unemployment tends to occur in certain industries. – Hotel and catering – Tourism – Fruit picking – Christmas
Unemployment Statistics
Natural Rate of Unemployment Level of unemployment at which there
is no cyclical unemployment.
Full Employment Level of employment that occurs
when the unemployment rate is at the “natural rate.”
The Natural Rate of Unemployment
Depending on whom you talk to …
4% to 5% is considered the natural rate. Consists of only structural and
frictional unemployment.
Historic Unemployment Rates
1933 during the Great Depression – 25%
1998 – Unemployment fell to 3.9%
October 2009 – 10.2% - highest in 26 years!
March 2010 – 9.7%
3.9% Unemployment
Why wouldn’t this be good for the economy?
Wage Inflation
How do employers attract or keep employees if there is not enough workers? Higher Wages More Benefits
1999, Amigos was paying $9 per hour and McDonalds offered $500 signing bonuses.
Why would that be bad?
Costs go up (labour), so prices have to rise to cover labour.
Higher prices make workers demand more money.
Cost – Push Inflation
Current Data on Unemployment for the US
According to the Bureau of Labour Statistics (www.bls.gov)
Currently wages are stagnant to negative.
Unemployment Data
Previously: 303,000 new jobless claims were filed in March 2009.
Currently: 448000 in the week ending April 24, 2010
168000 people reported getting jobs in March 2010
Comparison of key countries December 09
BRIC Country Unemployment
Brazil – 9.7% (est.)
Russia – 6.4% (est.)
India – 6.8% (DOWN)
China – 4.0%
BTW:
Top 3 of unemployment: Nauru Liberia Zimbabwe
Countries with the lowest unemployment -
Countries with the lowest unemployment Andorra Monaco Qatar
Consequences of Consequences of UnemploymentUnemployment
Real Output Effects– Each 1% of unemployment
results in a reduction of $100-billion in output.
– Lower real investment means less growth and reduced future output.
– OKUN’S LAW!
Consequences of Unemployment
Income EffectsIncome Effects Loss of income and Loss of income and
benefits (Health benefits (Health insurance)insurance)
Loss of income to Loss of income to others because of others because of reduced purchasing reduced purchasing powerpower
Reduced tax income Reduced tax income and increased outlays and increased outlays of government.of government.
Consequences of Consequences of UnemploymentUnemployment
Social Effects– Health Problems– Increased suicides– Break up of families– Increased child abuse– Increased crime
Review
How do economists measure the unemployed?
Previously unemployed individuals who have stopped looking for work are called ____ workers.
What are the types of unemployment? The natural rate of unemployment
consists solely of frictional and structural unemployment.
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