Unit 2- Topic 4: Unemployment

Unemployment-

• Failure to use available resources particular labor to produce desired goods and services.

Population-

•  Number of people in a country

Labor Force-

• Number of people in a country that are classified as either, employed or unemployed.

• Employed- people who are 16 year of age or older and they have a job. must work one hour every two week to be considered as employed.
• Unemployed- people who are 16 years of age or older that don't have a job but actively searched for a job in the past two weeks.

Not in the Labor Force-

• Kids
• Full Time Students/ College Student
• Institutionalized (mental institution)
•  People in Jail or Prison (state intimates do not get paid)
• Disabled 
• Retirees
• Military Personals
• Stay at home moms and dads 
• Discouraged Workers

Total Labor Force- #of unemployed+#of employed
Unemployment Rate= # of unemployed/ Total Labor Force (# of unemployed + employed)

Types of Unemployment

Frictional-

• Temporarily unemployed on “in -between” jobs 
• Qualified works with transferable skills 
• EX. High school/ college graduate, people looking for a better job. 

Seasonal-

• Due to the time of the year 
• EX. Lifeguards, construction workers, school bus drivers, mall Santa’s, Easter bunnies 

Structural-

• Changes in the structure of the labor force makes some skills obsolete
• Workers don’t have transferable skills
• Jobs will never come back
• Creative destruction- jobs are created or destroyed 
• EX. VCR repairmen, typewriter repairmen, works in NASA           

Cyclical-

• Demand for goods and services falls, demand for labor falls and workers are laid off. 
• Results from economic downturns = recession
• Known as the worst kind of unemployment.
• If cyclical unemployment is present we do not have full employment. 

Full Employment-

• 4-5% unemployment (There is no Cyclical Unemployment)
• NRU= frictional+structural unemployment

NRU-

• Natural Rate of Unemployment (Frictional + Structual Unemployment = NRU)

Okun’s Law-

• When unemployment increases by 1% above the natural rate of Unemployment then real GDP will fall by 2%. EX. natural rate: 5.5% real: 6.5%, 6.5-5.5=1 x 2= 2

Rule of 70-

• The number of years that is required for GDP to double.
• EX. If the annual inflation rate is 2% how many years will it take for GDP to double? 70/2 = 35 years