AP Macroeconomics

Unemployment

Unemployment• Start with the Population of the Country (310

million)• Let’s figure out which groups of people are NOT

in the labor force!

• Not in Civilian Labor Force– Kids – Military personnel– The institutionalized– Stay at home Moms and Dads– Full-time students– Retired people– the DISCOURAGED (to be in the labor force the

person has to be LOOKING for work)

• Labor force– Number of people in a country that are

classified as either employed or unemployed

– Labor Force Participation Rate• % of working age population in the

labor force (U.S. is approx. 63% and is at the lowest level since August of 1978)

http://data.bls.gov/pdq/SurveyOutputServlet

Unemployment• Employed

– People 16 years and older that have a job.– It doesn’t matter if it’s part-time or full-

time, as long as they work at least 1 hour every 2 weeks

– Those on sick leave, strike, vacation• Unemployed

– People 16 years and older that don’t have a job, but have actively searched for a job in the last 2 weeks

– Unemployment is the percentage of people who do not have jobs that are in the labor force.

Unemployment– *****Unemployment rate = # of unemployed / #

of people in labor force*****

– Remember that the labor force is made up of the employed AND unemployed.

– Also remember that to be counted as unemployed the person has to have LOOKED for a job in the past two weeks.

Types of Unemployment• Frictional—”good” unemployment Why?

How?– “between jobs”, voluntary, good for

individuals and society because they are looking for a “better” job.

– Example: Someone quits their job to go back to school. After finishing school they look for a job. While they’re looking for their new job they’re unemployed.

– Example—quitting the minimum wage job at McDonald’s to find a job as a teacher’s aide.

Types of Unemployment• Seasonal (can be counted as

Frictional)– Mall Santas from January through

October, Schlitterbahn life-guards, concession stand operators at Texans’ games from February through July, golf teachers in Alaska during January (it’s cold and no one plays golf so no one needs a golf teacher!)

– Migrant workers– Brick layers in Boston from December

through February– Unemployment is foreseen. Not horrible

for the economy or the person

Types of Unemployment

• Structural—temporarily bad for person. Hopefully will be “good” in the long run for person and economy.– Associated with lack of skills or declining

industry – (ex. High school dropouts who can’t find a job,

type-writer repairmen). – Think “Creative Destruction” however very

painful to people

Types of Unemployment

• Cyclical—BOOOOO! – Associated with downturns in business

cycle. – Bad for society and individuals.– We have loads of cyclical unemployment now.

(Written in 2011).– How much cyclical do we have right now?

What is Full Employment?• Occurs when there is no cyclical

unemployment present in the economy• Associate with the Natural Rate of

Unemployment (NRU) (AKA full employment). – The level of unemployment experienced

when the economy is producing at its full potential.

– The United States’ NRU is approx. 5%• Associate Full Employment (FE) with the

PPC and the long-run aggregate supply.

Why Unemployment is bad

• Okun’s Law- Every 1% of u% ABOVE the NRU causes a 2% decline in Real GDP.– Our unemployment is about 1.5% above

NRU right now.– That means we’re giving up 3% of GDP

Societal Impact of Unemployment

• The burden of unemployment is not equally shared in society.– Middle class workers laid off may have

savings and human capital to fall back on.

• It causes social unrest and is hard on individuals and families.

Okun’s Law

• For every 1% of unemployment above NRU GDP declines by 2%