Chapter 29

Unemployment

Key Termslabor forceunemployment ratelabor-force participation ratenatural rate of unemploymentcyclical unemploymentdiscouraged workersfrictional unemployment

structural unemploymentjob searchunemployment insuranceunioncollective bargainingstrikeefficiency wages

Unemployment

How is it measured?Who measures it?

Central Department of Statistics and Information

www.cdsi.gov.sa

Unemployment

EmployedUnemployed

Not in the Labor Force

Employedpaid employees

work in own businessunpaid workers in family business

full-time and part-timejobs but temporary absence

Unemployednot employed

availabletried to find a job in the last four

weekswaiting to be recalled from layoff

Not in Labor Forcenot employed or unemployed

full-time studenthomemaker

retiree

Not in Labor Forcenot employed or unemployed

full-time studenthomemaker

retiree

Labor Force

Employedand

Unemployed

Unemployment Rate

The percentage of the labor force that is

unemployed

Unemployment Rate

Employed 140

Unemployed 22

Labor Force 162

Unemployment Rate 13.6%

Labor-ForceParticipation Rate

The percentage of the adult population that is

in the labor force

Labor Force 162

Adult Population 325

Participation Rate 49.8%

Labor-ForceParticipation Rate

Employed 140

Unemployed 22

Labor Force 162

Unemployment Rate 13.6%

Adult Population 325

Participation Rate 49.8%

Rates

Natural Rate of Unemployment

The normal rate of unemployment around

which the unemployment rate fluctuates

CyclicalUnemployment

The deviation of unemployment from its

natural rate

Discouraged Workers

People who would like to work but have given

up looking for a job

ProblemsOverstate - Above actual

Cash workers

Understate - Below actualDiscouraged workers

Unemployment

FrictionalSeasonalStructural

Frictional

Time to find a new job

Seasonal

Demand changes with the season

Structural

Too many workers

Change in demand for skills

Structural

Creative Destruction

10% a Year

Unemployment Insurance

Government program to provide income when

workers become unemployed

Unemployment Insurance

Unintended ConsequenceMoral Hazard

May prolong unemployment

Why are wages too high?

Minimum wage lawsUnions

Efficiency Wages

Minimum Wage Laws

Government sets a minimum wage that can

legally be paid

0

1,000

2,000

3,000

4,000

0 10 20 30 40 50 60

Supply

Demand

Wage

Workers

Equilibrium Wage

30 workers30 jobs

no unemployment

Minimum Wage40 workers

20 jobs20 unemployed

workers

Minimum Wage20 workersget a raise10 workers

lose job10 new

unemployed workers

MinimumWage

Union

Worker association that negotiates with

employers over wages, benefits, and conditions

Union

One contract for all employees

Strike

Conflicts between workers

Efficiency Wages

Higher wages make more productive

employees

Efficiency Wages

Employee Wage Pizzas ProductivityWage per Pizza

Ali 100 5 20.0

Abdullah 200 12 16.7

Efficiency Wages

More HealthyLower TurnoverHigher Quality

More Effort