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Chap 4

The document discusses unemployment, defining it as individuals who are employable and actively seeking work but unable to find a job. It categorizes unemployment into employed, unemployed, and not in the labor force, while also detailing its effects, measurement, and classifications such as frictional and structural unemployment. Additionally, it outlines various policies aimed at reducing unemployment, including education, wage adjustments, and fiscal measures.

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Tuấn Đỗ Anh
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22 views27 pages

Chap 4

The document discusses unemployment, defining it as individuals who are employable and actively seeking work but unable to find a job. It categorizes unemployment into employed, unemployed, and not in the labor force, while also detailing its effects, measurement, and classifications such as frictional and structural unemployment. Additionally, it outlines various policies aimed at reducing unemployment, including education, wage adjustments, and fiscal measures.

Uploaded by

Tuấn Đỗ Anh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Macroeconomics

Dong Xuan Bach

Data Science program - NEU

2023
Chapter 4: Unemployment
▶ Definition of unemployment
▶ Measurement of unemployment
▶ Classification of unemployment
▶ Policies for reducing unemployment
What is unemployment?
Unemployment is a term referring to individuals who are
employable and actively seeking a job but are unable to find a
job.
Identifying Unemployment

The Bureau of Labor Statistics (BLS) divides adult (age 16


and older) into 3 categories.
▶ Employed: People work as paid employees, work in their
own business, or work as unpaid workers in a family
member’s business.
▶ Unemployed: People were available for work, and had
tried to find employment during the previous four weeks.
▶ Not in the labor force: people fit neither of the first
two categories, such as full-time students, homemakers,
and retirees.
Effects of unemployment

▶ Difficulty finding a new job


▶ Reduced income
▶ Negative familial effects
▶ Health issues
▶ Less overall satisfaction
▶ Increase unemployment insurance
▶ High crime rates
▶ Decrease GDP Okun law: 1% ↑ unemployment = 2.5% ↓
GDP
▶ ..
Measure of unemployment
Labor Force
▶ The labor force is the sum of the employed and the
unemployed:

Labor force = Number of employed+Number of unemployed

▶ The unemployment rate is the percentage of the labor


force that is unemployed:

Number of unemployed
Unemployment rate (%) = × 100.
Labor force
▶ The labor-force participation rate measures is the
percentage of the adult population that is in the labor
force:
Labor force
Labor-force participation rate (%) = ×100.
Adult population
Labor force participation rate by gender
Actual rate vs Natural rate

▶ Natural rate of unemployment is the minimum


unemployment rate resulting from real or voluntary
economic forces
▶ It would exist in a growing and healthy economy.
▶ This rate occurs when the demand and supply for labor
are at the equilibrium.
Actual rate vs Natural rate of Unemployment in US
Classification of Unemployment
Long run vs Short run

▶ Long-run: Natural Unemployment


▶ It is the amount of unemployment that the economy
normally experiences.
▶ Inevitable / Unavoidable: It does not go away on its own.

▶ Short-run: Cyclical Unemployment


▶ Fluctuates around Natural Unemployment rate.
▶ Varies with changes in economic cycle.
▶ It is associated with with short-term ups and downs of
the business cycle
Natural unemployment

Natural rate of unemployment: consisting of frictional and


structural unemployment

▶ Frictional unemployment: occurs with the normal


workings of the economy, such as workers taking time to
search for suitable jobs and firms taking time to search
for qualified employees

▶ Structural unemployment: occurs due to structural


imbalance in the labor market. This mismatch could be
because job seekers don’t have the skills required to do
the available jobs, or because the available jobs are a
long way from the job seekers.
Other Types of Unemployment

▶ Underemployment occurs when people are employed, but


would like and are available to work more hours.

▶ Hidden unemployment (discouraged workers) occurs when


people are not counted as unemployed, but would
probably work if they had the chance.

▶ Seasonal unemployment occurs at different points over


the year because of seasonal patterns that affect jobs.
Policy to reduce unemployment
Minimum-wage Law

If the wage is kept above the equilibrium level for any reason, the
result is structural/frictional unemployment.
Union of Labor

▶ A union is a worker association that bargains with


employers over wages, benefits, and working conditions.
▶ When a union bargains with a firm, it asks for higher
wages, better benefits, and better working conditions
than the firm would offer in the absence of a union.
▶ If the union and the firm do not reach agreement, the
union can organize a withdrawal of labor from the firm,
called a strike.
▶ When a union raises the wage above the equilibrium level,
it raises the quantity of labor supplied and reduces the
quantity of labor demanded, resulting in unemployment.
Efficiency wage theory

▶ Efficiency wages is above-equilibrium wages paid by


firms to increase worker productivity.
▶ Minimum-wage laws and unions prevent firms from
lowering wages in the presence of a surplus of workers.
Efficiency-wage theory states that such a constraint on
firms is unnecessary in many cases because firms may be
better off keeping wages above the equilibrium level
▶ Reasons: Reduce employee turnover, Increase worker
health, Attract and retain skilled workers, Increase trust
and loyalty.
Another causes of unemployment

▶ Voluntarily leaving the workforce: rich enough or work


relocate
▶ New workers enter the workforce like students
▶ Job seekers re-enter the workforce
▶ Advances in technology such as computers or robots
replace workers
▶ Recession
▶ ...
Policy to reduce unemployment

▶ Education and training to help reduce structural


unemployment
▶ Lower minimum wage to reduce real wage unemployment.
▶ Lower employment taxes to increase labour demand - for
example, a reduction in national insurance contributions
▶ Paying subsidies to firms that provide training to
displaced workers,
▶ More flexible labor markets, to make it easier to hire and
fire workers.
▶ Improved export labor
▶ Monetary and Fiscal policy: cutting interest rates to
boost aggregate demand (AD)

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