if labor markets tend to equilibrium, why is unemployment always present?
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If labor markets tend to equilibrium, why is unemployment always present?. Some unemployment is compatible with equilibrium Equilibrium level of unemployment Natural rate of unemployment Full employment level of unemployment. Labor Market as a Game of Musical Chairs - PowerPoint PPT PresentationTRANSCRIPT
If labor markets tend to equilibrium, why is unemployment always present?
Some unemployment is compatible with equilibrium
Equilibrium level of unemployment
Natural rate of unemployment
Full employment level of unemployment
Labor Market as a Game of Musical Chairs
At equilibrium unemployment
job vacancies = job seekers
=
Frictional Unemployment
Even when seekers equal vacancies, it takes time for the market to clear
“Between Jobs”
Periods of low unemployment
Magnitude of flows in May 1993
• In one month– 5 million leave employment– 5 million enter employment– ~7.8% (10mil/128.1mil) of labor force change
employment status every month
– 3.5 million leave unemployment– 3.5 million enter unemployment– ~5.5% of labor force change unemployment status
every month
Expected unemployment duration
• Suppose probability p of leaving unemployment in one month
• Random draw on job– Probability you get a job in any month = p– you stay unemployed = (1-p)– Expected duration = (1/p)
FIGURE 15.1 Labor Market Stocks and Flows: May 1993
p = (2/8.9) = .224p = (2/8.9) = .224
Duration = 1/p = 4.5 mo.Duration = 1/p = 4.5 mo.
p = (2/8.9) = .224p = (2/8.9) = .224
Duration = 1/p = 4.5 mo.Duration = 1/p = 4.5 mo.
p = ([2=1.5]/8.9) = .393p = ([2=1.5]/8.9) = .393
Duration = 1/p = 2.5 mo.Duration = 1/p = 2.5 mo.
p = ([2=1.5]/8.9) = .393p = ([2=1.5]/8.9) = .393
Duration = 1/p = 2.5 mo.Duration = 1/p = 2.5 mo.
Periods of low unemployment
Average = 3 months (14 weeks); Average = 3 months (14 weeks);
Peak = 4.7 months (21 weeks)Peak = 4.7 months (21 weeks)
TABLE 15.2 Sources of Unemployment, United States, Various Years
Iowa Unemployment Rate: 1978-2003
0
2
4
6
8
10
12
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Year
%
Seasonally Adjusted
Not Seasonally Adjusted
Seasonal unemployment: unemployment that is fully anticipated because of seasonal fluctuations in demand
Unemployment that is not a problem
Frictional
Seasonal
Voluntary (quits, new entrants, reentrants)
Elements of equilibrium unemployment
Problem unemployment
Cyclical Unemployment—unemployment associated with national business cycles (recession)
Structural unemployment: localized shortfall of demand (geographic (Appalachia); industry (textiles); skill (dropouts, young)
Avg UR=4.5%
Avg UR=9%
Avg UR=7.1% Avg UR=7.2%
Unemployment Rate for Population aged 25 and over, by Education Level: 2000, 2002
Years of Schooling UR: 2000 UR: 2001< 12 6.4 7.312 3.5 4.2
13-15 2.7 3.316+ 1.7 2.3
Average UR for ages 25+ 3 3.7UR for ages 16+ 4 4.8
Source: Current Population Survey
Appendix 2: Unemployment rates by education level, various countries, 2003
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Education level
Un
emp
loym
ent
rate
Australia
Austria
Belgium
Canada
France
Germany
Korea
NewZealnd
Spain
Sweden
UK
US
TABLE 15.3 Unemployment Rates in 2000 by Demographic Group
Seasonally Adjusted Unemployment Rates, by occupation
Jan-83 Jul-92 Jul-'02Manager/Professional 3.7 3.2 3.1Technical/Sales/Clerical 6.9 6.1 5.3Crafts 11.3 8.5 6.4Laborer/Operative 18.5 11.3 8.6
Manufacturing 13 8.1 6.3Service 9 7.1 5.9Government 5.5 3.4 2.5
Overall 10.4 7.7 5.9
Unemployment Rate for Population aged 25+, by Education
TABLE 2.4 Unemployment and Long-Term Unemployment, Selected European and North American Countries, 2003