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Unemployment

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					Unemployment
         Unemployment
• Official Definition:
  – The total number of adults who are
    willing and able to work;
  – Who are not working;
  – And who have made a specific effort to
    find work
         Unemployment
• Adults are defined as anyone 16 and over.

• Actively seeking work means:
  – Will have a job in 30 days.
  – Waiting to be recalled.
  – Has looked for work in the past 4 weeks.
   Unemployment Rate
• Defined as:
        NUMBER UNEMPLOYED
              LABOR FORCE
 How to Obtain the
Unemployment Rate
     How to Obtain
   Unemployment Rate
     TOTAL POPULATION
            Minus
INSTITUTIONALIZED POPULATION
            Equals
   NON-INSTITUTIONALIZED
          POPULATION
How to Obtain Unemployment
           Rate

   NON-INSTITUTIONALIZED
          POPULATION
            Minus
   NOT IN THE LABOR FORCE
            Equals
        LABOR FORCE
How to Obtain Unemployment
           Rate

        LABOR FORCE
            Minus
       ARMED FORCED
            Equals
 TOTAL CIVILIAN LABOR FORCE
    How to Obtain
  Unemployment Rate

TOTAL CIVILIAN LABOR FORCE
           Minus
        EMPLOYED
           Equals
       UNEMPLOYED
     Categories for Finding the
       Unemployment Rate

A. TOTAL POPULATION
 –    The total population of the United States
     Categories for Finding the
       Unemployment Rate

B. INSTITUTIONALIZED POPULATION
 –    Everyone under 16
 –    Everyone in jails
 –    Everyone in insane asylums
 –    Everyone in nursing homes
     Categories for Finding the
       Unemployment Rate

C. NOT IN LABOR FORCE
 –    Retirees not working
 –    People unable to work
 –    Full time students
 –    Homemakers
     Categories for Finding the
       Unemployment Rate

D. ARMED FORCES
 –    All active duty military personnel.
 Problems with the
Unemployment Rate
         Problems with the
        Unemployment Rate

•   Numerous problems with how we count
    leads to a serious undercount of the true
    number of unemployed.
        Problems with the
       Unemployment Rate

A. DISCOURAGED WORKERS
 –   People without jobs, who have given up
     looking for work.
 –   Usually recognized as the most serious
     problem
        Problems with the
       Unemployment Rate

A. DISCOURAGED WORKERS
 –   Officially, they cease to be counted as
     unemployed.
 –   Instead, they are dropped out of the labor
     force.
        Problems with the
       Unemployment Rate

A. DISCOURAGED WORKERS
 –   Depending on the state of the economy, they
     can be as many as 2% of the labor force.
        Problems with the
       Unemployment Rate

A. DISCOURAGED WORKERS
 –   Depending on the state of the economy, they
     can be as many as 2% of the labor force.
           Problems with the
          Unemployment Rate

•   The number of discouraged workers
    increases:
    –   The longer a recession lasts.
    –   The more severe a recession is.
        Problems with the
       Unemployment Rate

B. OLDER MALE WORKERS:
 –   The percentage of men over 55 who work,
     has fallen in the last 25 years.
           Problems with the
          Unemployment Rate

B. OLDER MALE WORKERS:
    –   Some is due to voluntary early retirement.
    –   Some is due to forced, early retirement.
    –   Some is due to layoffs.

•   We don’t really know how much of
    each!
        Problems with the
       Unemployment Rate

C. PART TIME WORKERS
 –   Many part time workers only want part time
     work.
 –   But for many others, part time is not a
     voluntary choice.
        Problems with the
       Unemployment Rate

C. PART TIME WORKERS
 –   Some are virtually full time (35+hours).
 –   Some have several part time jobs.
 –   Some have been forced to take cuts in the
     hours they work.
        Problems with the
       Unemployment Rate

C. PART TIME WORKERS
 –   Similar to the problem with older male
     workers, we don’t really know the
     percentages in each category.
        Problems with the
       Unemployment Rate

D. OTHERS
 –   There are a large number of women (up to 1
     million), who would like to work, but can’t
     because they are:
        Problems with the
       Unemployment Rate

D. OTHERS
 –   Taking care of children
 –   Taking care of elderly parents
 –   Taking care of sick family members.
        Problems with the
       Unemployment Rate

D. OTHERS
 –   Similar to the problem of part time
     workers, we don’t know how many would
     choose to work if they could afford child
     care or home nursing care.
      Problems with the
     Unemployment Rate

E. BLURRING OF THE CATEGORIES.
 – In today’s economy, many retirees and
   homemakers work part time.
 – Many students work full or part time.
         Problems with the
        Unemployment Rate

E. BLURRING OF THE CATEGORIES
- There are more than 2,000,000 people
   in prison, making furniture, jewelry,
   taking catalogue orders.
-   People in jail are working and competing
    with free labor!
        Problems with the
       Unemployment Rate

E. BLURRING OF THE CATEGORIES
    The consequence is to make it harder to
    determine if a person is in or out of the
    labor force.
Types of Unemployment
     Types of Unemployment
A. Frictional

B. Seasonal

C. Structural

D. Cyclical
      Types of Unemployment
A. Frictional
  –   Includes first time job seekers.
  –   Includes between moving between jobs.
  –   Entirely voluntary.
      Types of Unemployment
B. Seasonal
  –   Due to the nature of the job, work is only
      available part of the year.
  –   Examples include construction workers,
      teachers.
      Types of Unemployment
C. Structural
  –   Due to changes in technology and the
      structure of the economy.
  –   Includes coal miners, farmers, bank tellers.
        Types of Unemployment
D. Cyclical
• Due to business cycle:
    –   In periods of economic growth, low
        unemployment
    –   In periods of recession, high unemployment

•   Increasingly includes white collar
    workers.
Costs of Unemployment
     Costs of Unemployment
A. Individual

B. Social

C. Economic
    Costs of Unemployment


A. To the Individual
  – Loss of income
  – Loss of benefits and health insurance
  – Loss of self esteem
      Costs of Unemployment

B. To Society
  –   Increase in suicides
  –   Increase in murders
  –   Increase in alcohol and drug abuse related
      deaths and injuries
  –   Increase in reported child and spouse abuse
      Costs of Unemployment

B. To Society
  –   Increase in criminal activity
  –   Increase in drug trafficking
  –   Increase in welfare payments
  –   Increase in taxes to pay for welfare
    Costs of Unemployment


C. To the Economy: The GDP Gap
 – GDP gap is defined as:
   • Potential GDP – Actual GDP
     Costs of Unemployment
• Potential GDP
  - The size of the GDP if the economy
  were at full employment.

• Actual GDP
    -Our best estimate of the current
  size of the GDP.
        Costs of Unemployment
•   The GDP Gap
    –   Is an estimate of all the goods and services
        NOT produced because the economy is not at
        full employment.

    –   The GDP gap is an estimate of the dollar cost
        of a recession.
        Costs of Unemployment
•   The GDP Gap
    –   The more severe the recession is, the larger
        the GDP gap is.

    –   Lost production from a recession can never be
        recovered.

				
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