# Unemployment Unemployment (cont’d) Unemployment (cont’d) Figure 7-2 Adult Population Unemployment (cont’d)

## Unemployment Unemployment (cont’d) Unemployment (cont’d) Figure 7-2 Adult Population Unemployment (cont’d)

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7- Employment & Unemployment Calculations Total Population (A) Less Institutionalized Population Non-Institutionalized Population Less Not in Work Force Total Work as long as ce (B) Less Military Civilian Work as long as ce (C) Less Employed Unemployed (D) Labor Force Participation Rate = (B) / (A) Unemployment Rate = (D) / (C) Unemployment (cont’d) Costs of unemployment Lost output During early 2000s, unemployment rate rose by 2 percentage points Factory output was 80% of potential Lost output was \$200 billion of goods in addition to services that could have been produced Personal psychological impact 7- Figure 7-1 More Than a Century of Unemployment 7- Source: U.S. Department of Labor, Bureau of Labor Statistics

Figure 7-2 Adult Population 7- Unemployment (cont’d) The unemployment rate is the percentage of the measured labor as long as ce that is unemployed. 7- Unemployment (cont’d) 152.7 = 145.4 + 7.3 7- U.S., millions of people; as of 2007 Labor as long as ce = The employed + The unemployed Unemployment rate = x 100 Unemployed Labor as long as ce

Unemployment (cont’d) Stock The quantity of something, measured at a given point in time as long as example, an inventory of goods Flow A quantity measured over time, such as the income you make per year, or the number of individuals fired every month 7- Unemployment (cont’d) Categories of individuals without work Job loser Reentrant Job leaver New entrant 7- Unemployment (cont’d) Job Loser An individual whose employment was involuntarily terminated or who was laid off 4060% of the unemployed 7-

Unemployment (cont’d) Reentrant An individual who has worked a full-time job be as long as e but left the labor as long as ce in addition to has now reentered it looking as long as a job 2030% of the unemployed 7- Unemployment (cont’d) Job Leaver An individual who voluntarily quit 10 to 15% of the unemployed 7- Unemployment (cont’d) New Entrant An individual who has never worked a full-time job as long as two weeks or longer 10 to 15% of the unemployed 7-

Unemployment (cont’d) Duration of unemployment More than a third of job seekers find work within one month. Approximately another third find employment within a second month. About a sixth are still unemployed after six months. Average duration is just over 15 weeks throughout the last 15 years. 7- Unemployment (cont’d) Discouraged Workers Individuals who have stopped looking as long as a job because they are convinced they will not find a suitable one (no longer in work as long as ce) Question How does the existence of discouraged workers bias the unemployment rate 7- 7- Question How does the existence of discouraged workers bias the unemployment rate Unemployment (cont’d) Unemployment rate = x 100 Unemployed Labor as long as ce Assume that there are 3 million discouraged workers.

Unemployment (cont’d) Labor Force Participation Rate The proportion of non-institutionalized working-age individuals who are employed or seeking employment 7- The Major Types of Unemployment The major types of unemployment Frictional Structural Cyclical Seasonal 7- The Major Types of Unemployment (cont’d) Frictional Unemployment Results from the fact that workers must search as long as appropriate job offers This takes time, so they remain temporarily unemployed 7-

The Major Types of Unemployment (cont’d) Structural Unemployment Results from a poor match of workers abilities in addition to skills with current requirements of employers 7- The Major Types of Unemployment (cont’d) Cyclical Unemployment Results from business fluctuations that occur when aggregate (total) dem in addition to is not at a level that would result in full employment Can be positive or negative 7- The Major Types of Unemployment Seasonal Unemployment Results from the seasonal pattern of work in specific industries Adjustments are made to offset the effects of seasonal unemployment so that meaning comparisons can be made between different periods of the year. This adjustment is needed in order to assess the affects of the other types of unemployment. 7-

Full Employment in addition to the Natural Rate of Unemployment (cont’d) Full Employment An arbitrary level of unemployment that corresponds to normal friction in the labor market 7- Full Employment in addition to the Natural Rate of Unemployment (cont’d) Natural Rate of Unemployment The unemployment rate that is estimated to prevail in the long-run macroeconomic equilibrium Should not reflect cyclical unemployment When seasonally adjusted, the natural rate should include only frictional in addition to structural unemployment. 7- Inflation in addition to Deflation Inflation A sustained increase in the average of all prices of goods in addition to services in an economy Deflation A sustained decrease in the average of all prices of goods in addition to services in an economy 7-