Unit 2 - Unemployment

• Unemployment - the failure to use available resources, particularly labor, to produce desired goods and services
• Population - the total amount of people in a country
• Labor Force - # of people in a country that is employed or unemployed

Types of Employment

• Employed
• people who are 16 years old of age or older who have a job
• employed = if you work at least 1 hour every 2 weeks
• Unemployed
• people who are 16 years of age or older that do not have a job, but they are actively searching for a job within the last 2 weeks
• Not in the Labor Force
• kids
• full-time students
• retirees
• disabled people
• homemakers
• mentally institutionalized people
• incarcerated
• military
• discouraged workers

Unemployment Rate

• (# of unemployed) / (total labor force) x 100

Types of Unemployment

• Frictional Unemployment
• to be temporarily unemployed of "in-between" jobs
• the workers are qualified and have transferable skills
• ex: high school & college graduates, people looking for a better opportunity
• Seasonal Unemployment
• due to the time of the year and the nature of the job
• ex: life guards, construction workers, mall Santa Claus, Easter bunny, school bus driver
• Structural Unemployment
• changes in the structure of the labor force, which make some skills obsolete
• workers do not have transferable skills
• ex: VCR repairman, typewriter repairmen
• creative destruction - when a new job is created, an old job is destroyed
• Cyclical Unemployment
• unemployment that results from economic downturns 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 Unemployment)

• NRU = Frictional Unemployment + Structural Unemployment
• Full Employment = there is no cyclical employment

• Okun's Law - for every 1% in which the actual unemployment rate exceeds the natural rate of unemployment, it causes a 2% decline in real GDP

• Rule of 70 - calculates the # of years that is required to double GDP
• If annual inflation rate is 2%, how long will it take for GDP to double?
• 70/2 = 35 years