Unemployment (02/09/17)

What is Unemployment?

It is the percentage of people who do not have a job in the labor force.

Unemployment rate =                       # unemployed                           x 100

                                    # in labor force (unemployed + employed)

The standard unemployment rate is 4 - 5%

4 types of Unemployment:

1. Frictional Unemployment

• " Temporarily unemployed " or being between jobs.

•  Individuals are qualified workers with transferable skills but they aren't working.

Ex.: High school or college graduates looking for jobs.

- Individuals who were fired and are looking for a better job.

2. Seasonal Unemployment

• This is a specific type of frictional unemployment which is due to the time of year and the nature of the job.
• These jobs will come back

Ex.: Professional Santa Clause impersonators.
       - Construction workers in Michigan.

3. Structural Unemployment

• Changes in the structure of the labor force make some skills obsolete
• Workers DO NOT transferable skills and these jobs will never come back
• Worker must learn new skills to get a job
• The permanent lose of these jobs is called " creative destruction".

Ex.: repairman

4. Cyclical Unemployment

• Is the downturns in the business cycle, which will result in a recession.
• As demand for labor falls and workers are fired.

Ex.: Steelworker laid off during recessions.
- Restaurants owner fires waitress after months of poor sales due to recession.

The Natural Rate and Full Employment

Two of the three types of unemployment are unavoidable:

• Frictional Unemployment

• Structural Unemployment 

Together  they make up the National Rate of Unemployment (NRU)

Frictional + Structural = NRU (4  - 5 %)

                    ^

        Full employment

Full employment means NO Cyclical unemployment!

Okuns law: When unemployment rises a percent above the natural rate, GDP falls by about 2 percent.