Unemployment Measures

  • Am I unemployed?

    • Shiloh, a 2 year old, who spends his day playing with toy cars, train sets, and bobbleheads? ❌
    • Peter, a 70 year old who has retired after working over 45 years in sales? ❌
    • Grace, a 35 year old housewife, who chooses not to work, despite having graduated from Stanford University, in order to take care of her two kids, Jinhee and Stone? ❌
  • Employed

    • People currently holding a job in the economy (either full-time or part-time)
  • Unemployed

    • People who are actively looking for work but have not found a job
  • Labor Force

    • Sum of employed and unemployed
  • Labor Force Participation

    • Percentage of the population 16 or older that is in the labor force

    • Labor force participation rate=Labor forcePopulation age 16 and older×100 \text{Labor force participation rate} = \dfrac{\text{Labor force}}{\text{Population age 16 and older}} \times 100

  • Unemployment rate

    • Defined as the percentage of total number of people in the labor force (employed + unemployed) who are unemployed

    • Unemployment rate=Number of unemployed workersLabor force×100 \text{Unemployment rate} = \dfrac{\text{Number of unemployed workers}}{\text{Labor force}} \times 100

  • Example

    Employed (139.9 million) Adult Population (235.9 million) unemployed
(14.3 million) Not in labor force (81.7 million) Labor Force (154.2

  • Unemployment rate = (14.3 / 154.2) × 100 = 9.3 percent

  • Labor-force participation rate = (154.2 / 235.9) × 100 = 65.4 percent

  • Is it possible for the unemployment rate to increase and yet be a positive sign for the economy? Explain

    • Increase in unemployment could be a positive sign for the economy

    • The number of employed labor also depends on the Labor Force Participation Rate

Limitation of the Unemployment Rate

  • Unemployment tends to understate the employment situation because you are unemployed only if you have been actively looking for labor

  • Marginally attached to labor force

    • Not in labor force, wanted and were available for work in prior 12 months but had not searched for work in the 4 weeks preceding BLS survey
  • Discouraged worker

    • part of marginally attached workers who give up because they believe no jobs are available for them
  • Underemployed

    • workers who would like full-time jobs but are working part-time or someone who is overqualified for his job position

Types of Unemployment

  • Frictional unemployment

    • part of the "natural" job process in which a worker spends to find a job

    • ie. a college graduate entering the labor force or someone who has voluntarily quit his job

  • Structural unemployment

    • exists when the quantity of labor supplied exceeds the quantity of labor demanded, usually because workers lack the skills demanded for the jobs available
  • Cyclical unemployment

    • share of unemployment that occurs as a result of the business cycle or deviation of the actual rate of unemployment from a natural rate


  • Examples

    • A person who moves to a new city to find a new job experiences

      • voluntary situation

      • natural "normal" process

      • Frictional unemployment

    • What type of unemployment is created by a recession

      • Cyclical unemployment

Effect of Minimum Wage on Labor Market

Wage rate Labor supply Structural unemployment Minimum wage . Labor
  demand Qs Quantity of labor

Natural Unemployment Rate

  • Because friction unemployment is considered to be "normal" and some structural unemployment is seen to be as unavoidable in some economies, economists have coined the term "natural unemployment rate"

  • Natural unemployment = Frictional unemployment + Structural unemployment

  • Actual unemployment = Natural unemployment + Cyclical unemployment

  • Full time employment is a situation in which there exists no cyclical unemployment


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