Unit 2: Unemployment

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Unemployment: 

  • Unemployment: The failure to use available resources, particularly labor to produce desired goods and services. 
  • Population: Total amount of people in a country.
  • Labor Force: Number of people in a country that is employed or unemployed. 
Employed: 
- People who are 16 years of age or older who have a job. 
-If you work at least one hour every 2 weeks, you are employed. 

Unemployed: 
-People who are of 16 years of age or older that don't have a job, but they are actively searching for a job within the last 2 weeks.

Not in the labor force: 
  1. Kids
  2. Full time students 
  3. Retired
  4. Disabled people
  5. Homemakers
  6. Mentally institutionalized people
  7. Incarcerated 
  8. Military Folk
  9. Discouraged workers
Unemployment rate formula: 
((Number of the unemployed)/(Total labor force)) X 100
Total Labor Force: Number of unemployed + Number of employed 

Type of unemployment

Frictional: Temporarily unemployed or "in-between jobs"
  • Workers are qualified and have transferable skills. 
  • High School/ College graduates 
  • People who are looking for better opportunity 
Seasonal: It is due to the time of the year and the nature of the job.
  • Ex: Life guard, construction workers, mall Santa Claus, Easter Bunny, school bus driver 
Structural: Changes in the structure of the labor force, which makes some skills obsolete 
  • Ex: VCR repairman, typewriter repairman
  • Creative destruction: When a new job is created, an old one is designed 
Cyclical: Unemployment that results from economic down turns such as recessions. 
  • As demand for goods and services falls, demand for labor falls and workers will be laid off. 

Full Employment/ NRU(Natural rate of the unemployment):
- 4% to 5% employments
- Full employment has no cyclical employment

  • Okun's law: For every 1% in which the actual employment rate exceeds the natural rate of unemployment it causes a 2% decline in real GDP.
  • Rule of 70: Calculates the number of years that is required to double GDP
    • Ex: If the annual inflation rate is 2%, how long would take for GDP to double?
      • Answer: 70/2= 35 years 

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