Unemployment

• Unemployment - percentage of people who do not have jobs but are in the labor force
• Labor force - number of people in a country that are classifed as either employed or unemployed

Not in the labor force :

1. kids
2. military personnel
3. mentally insane
4. prison
5. retired
6. stay at home parent
7. discouraged worker
• someone who applies but cannot get a job, so they stop trying to look
• a hobo, beggar

Unemployment rate : 4 - 5% is ideal

• (# of unemployed) / (# of unemployed + # of employed) x 100
• or
• (# of unemployed) / (labor force) x 100

Types of Unemployment -

• Frictional :
• between jobs because of education level, lifestyles, opportunities and choices
• people that are between jobs may quit for a better job
• graduating and interviewing for job
• quit but actively looking for a job
• Seasonal :
• depends on what it is, working during certain times of the year
• ex : school bus drivers, construction workers

Both frictional and structural unemployment is good or okay unemployment

• Structural :
• associated with lack of skills or declining industry
• high school dropout and/or if you can't read or write
• technology changes
• Cyclical :
• associated with down turns in business cycle
• bad for society and individuals
• trough, depression

Both structural and cyclical unemployment is bad unemployment

What is Full Employment? - occurs when there is no cyclical unemployment present in the economy

• Natural Rate of Unemployment (NRU) : 4 - 5%

Why is Unemployment bad?

1. not enough consumption (GDP)
2. creates too much poverty
3. creates too much government assistance

Why is it good?

1. less pressure to raise wages
2. more workers available for future expansions

Okun's Law - for every 1% of unemployment above the NRU, causes  a 2% decline in real GDP

Official Employment Statistics -

• Start with total population of the U.S.
• subtract those under 16
• subtract those in the armed forces
• subtract those that are institutionalized
• This leaves the "Non Institutional Adult" population
• subtract those that are already retired
• subtract homemakers
• subtract full-time students over 16
• subtract the discouraged
• This leaves the "Civilian Labor Force"
• count employed full or part-time
• count employed unpaid workers in the family business
• count those on sick leave, on strike, or on vacation
• count unemployed, but are actively looking for work
• This becomes the "Unemployment Rate" in percentages (%)

• 0 - 3% : overextended economy, war economy
• 4 - 5% : "Full Employment" Unemployment Rate (Efficient)
• 6 +% : "Weak" Economy or "Recession" Economy
• 25 % : Highest official unemployment rate in 1933