BÙI DUY HƯNG

MACROECONOMICS

TOPIC

UNEMPLOYMENT
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Interactive PowerPoint Slides by:
V. Andreea Chiritescu
Eastern Illinois University

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 I MEASURING UNEMPLOYMENT

• Produced by The General Statistics Office (GSO)

– Based on a monthly survey of thousands households: Current Population
Survey
– Based on “adult population” (16 yrs. or older)
• Population is divided into 3 groups:
– Employed: paid employees, self-employed, and unpaid workers in a family
business
– Unemployed: people not working who have looked for work during previous 4
weeks
– Not in the labor force: everyone else
• Labor force = Employed + Unemployed
– The total number of workers
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I MEASURING UNEMPLOYMENT

• Unemployment rate, u-rate

– Percentage of labor force that is unemployed

# of unemployed
u−rate
Labor force
• Labor-force participation rate, LFPR
– Percentage of adult population that is in the labor force
Labor force
Labor−force participation rate 100
Adult population

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 Active Learning 1: Calculate labor force statistics

Compute the labor force, u-rate, adult population, and labor force
participation rate using this data:

Adult population of the U.S.

by group, August 2019

# of employed 157.9 million

# of unemployed 6.0 million

not in labor force 95.5 million

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 Active Learning 1: Answers

Labor force = employed + unemployed

= 157.9 + 6 = 163.9 million
u-rate = 100 x (unemployed)/(labor force)
= 100 x 6/163.9 = 3.7%
Adult population = labor force + not in labor force
= 163.9 + 95.5 = 259.4 million
LFPR = 100 x (labor force)/(adult population)
= 100 x 163.9/259.4 = 63.2%

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 I MEASURING UNEMPLOYMENT
u-rate LFPR
Various demographic groups, August 2019
Men Women Men Women
Adults (20 yrs. and older)
White 3% 3.2% 71.8% 58%
Black 5.9 4.4 68.3 62.1
u-rate LFPR
Teens (16-19 yrs. old)
White 11.8 37.9
Black 15.7 29.2
All ages
Asian 2.8 64
Hispanic 4.2 66.7
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 I MEASURING UNEMPLOYMENT

Employment status by education, August 2019

Adults (25 yrs. and older)

u-rate LFPR
Less than high-school 5.4% 47.1%
High-school diploma 3.6 57.3
Some college or 3.1 65.6
assoc. degree
Bachelor’s or more 2.1 73.9

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 I MEASURING UNEMPLOYMENT

• The u-rate:
– Not a perfect indicator of joblessness or the health of the labor market
• It excludes discouraged workers.
• It does not distinguish between full-time and part-time work, or people
working part time because full-time jobs not available.
• Some people misreport their work status
– Still a very useful barometer of the labor market & economy.

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 I MEASURING UNEMPLOYMENT

• Most spells of unemployment are short:

– Typically 1/3 of the unemployed have been unemployed under 5 weeks, 2/3
have been unemployed under 14 weeks.
– Only 21% have been unemployed over 6 months.
• Most observed unemployment is long term.
– The small group of long-term unemployed persons has fairly little turnover, so
it accounts for most of unemployment observed over time.

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II TYPES UNEMPLOYMENT

• Natural rate of unemployment

– The normal rate of unemployment around which the unemployment rate
fluctuates
• Cyclical unemployment
– The deviation of unemployment from its natural rate

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 II TYPES UNEMPLOYMENT

Natural rate of unemployment

• Frictional unemployment
– Occurs when workers spend time searching for the jobs that best suit their
skills and tastes
– Short-term for most workers

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 3 WHY ARE THERE ALWAYS SOME PEOPLE UNEMPLOYED?

Natural rate of unemployment

- Job search: Process by which workers find appropriate jobs given their
tastes and skills.
- Some frictional unemployment is inevitable:
– Sectoral shifts: changes in the composition of demand among industries
or regions
– Changing patterns of international trade
– Because the economy is always changing

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 II TYPES UNEMPLOYMENT

Natural rate of unemployment

• Structural unemployment
– Occurs when the number of jobs available in some labor markets is
insufficient to provide a job for everyone who wants one
– Usually longer-term

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 II TYPES UNEMPLOYMENT

Explaining structural unemployment

unemployment
Structural unemployment occurs W
when there are not enough jobs to S
actual
go around. W1
wage

• Occurs when wage WE

is kept above equilibrium.

• There are three reasons for this.

D
L

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 II TYPES UNEMPLOYMENT

1. Minimum-Wage Laws
• The minimum wage
– May exceed the equilibrium wage for the least skilled and least experienced
workers, causing structural unemployment
– Quantity of labor supplied exceeds the quantity of labor demanded
– Workers are unemployed because they are waiting for jobs to open up

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 II TYPES UNEMPLOYMENT

2. Unions
• Union:
– Worker association that bargains with employers over wages, benefits, and
working conditions
– Exert their market power to negotiate higher wages for workers.
– The typical union worker earns 10-20% higher wages and gets more benefits
than a nonunion worker for the same type of work.

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 Active Learning 3: Structural or frictional unemployment?

Which of the following would be most likely to reduce frictional unemployment?

A. The government eliminates the minimum wage.
B. The government increases unemployment insurance benefits.
C. A new law bans labor unions.
D. More workers post their resumes at LinkedIn.com, and more employers use
LinkedIn.com to find suitable workers to hire.
E. Sectoral shifts become more frequent.

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 Active Learning 3: Answers A, B, C

A. The government eliminates the minimum wage.

– Likely to reduce structural unemployment, not frictional unemployment.
B. The government increases unemployment insurance benefits.
– Likely to increase frictional unemployment, not reduce it.
C. A new law bans labor unions.
– Likely to reduce structural unemployment, not frictional unemployment.

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 Active Learning 3: Answers D, E

D. More workers post their resumes at LinkedIn.com, and more employers use
LinkedIn.com to find suitable workers to hire.
– Likely to speed up the process of matching workers & jobs, which would
reduce frictional unemployment.
E. Sectoral shifts become more frequent.
– Likely to increase frictional unemployment, not reduce it.

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 III POLICY TO UNEMPLOYMENT

Job Search – 1

• Government-run employment agencies

– Provide information about job vacancies
• Public training programs
– Equip displaced workers with skills needed in growing industries
• Advocates:
– Keeps the labor force more fully employed
– Reduce the inequities inherent in a constantly changing market economy

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 4 POLICY TO UNEMPLOYMENT

Job Search – 2

• Critics:
– Should the government get involved with the process of job search?
– Is better to let the private market match workers and jobs
– The government is most likely worse:
• Disseminating the right information to the right workers
• Deciding what kinds of worker training would be most valuable

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 4 POLICY TO UNEMPLOYMENT

Unemployment Insurance – 1
• Unemployment insurance, UI
– A government program that partially protects workers’ incomes when they
become unemployed
– Reduces the hardship of unemployment
– Increases unemployment
• UI benefits end when a worker takes a job, so workers have less incentive
to search or take jobs while eligible to receive benefits.

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 4 POLICY TO UNEMPLOYMENT

Unemployment Insurance – 2

• Benefits of UI:
– Reduces income uncertainty
– Unemployed have more time to search
– Unemployed can look for jobs that better suit their tastes and skills
– Improves the ability of the economy to match each worker with the most
appropriate job

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