Chapter 29 !

Unemployment

Key Termslabor force unemployment rate labor-force participation rate natural rate of unemployment cyclical unemployment discouraged workers frictional unemployment

structural unemployment job search unemployment insurance union collective bargaining strike efficiency wages

Unemployment

How is it measured? Who measures it?

Central Department of Statistics and Information

!

www.cdsi.gov.sa

Total Population Not Adult Population Adult Population 15+ Not in Labor Force Labor Force Employed Unemployed

Population30

Saudis20

Adult Saudis 15+

14

Labor Force5.3

Employed4.7

Labor Force Participation Rate

Labor Force÷ Adult Saudis 5.3 ÷ 14 = 37.9%

Unemployment Rate

Unemployed ÷ Labor Force 0.6 ÷ 5.3 = 11.7%

Unemployed 0.60.6

Employedpaid employees

work in own business unpaid workers in family business

full-time and part-time jobs but temporary absence

Unemployednot employed

available tried to find a job in the last four

weeks waiting to be recalled from layoff

Discouraged Workers

People who would like to work but have given

up looking for a job

Not in Labor Forcenot employed or unemployed

discouraged workers full-time student

homemaker retiree

Unemployment Rate

The percentage of the labor force that is

unemployed

Adult Population

Population age 15 and older

Labor-Force Participation Rate

The percentage of the adult population (15+)

that is in the labor force

Employed 4,717,127

Unemployed 622,533

Labor Force = Employed + Unemployed

5,339,660

Unemployment Rate = Unemployed ÷ Labor Force

11.7%

Not in Labor Force 8,660,340

Adult Population Age 15+ = Labor Force + Not in Labor Force

14,000,000

Participation Rate = Labor Force ÷ Adult Population

38%

Source: General Statistics Department and Information

Saudi Labor Force

Saudi Adult Population 15+ 14 million

Not in Labor Force

Unemployed

EmployedLabor Force Unemployed + Employed

38%

62%

Employment Analysis Male Female Total

Employed 3,989,632 727,495 4,717,127

Unemployed 261,392 361,141 622,533

Labor Force 4,251,024 1,088,636 5,339,660

Unemployment Rate 6.1% 33.2% 11.7%

Adult Population 7,000,000 7,000,000 14,000,000

Participation Rate 61% 16% 38%

Employment Analysis Saudi Non-Saudi Total

Employed 4,717,127 6,011,996 10,729,123

Unemployed 622,533 10,114 632,647

Labor Force 5,339,660 6,022,110 11,361,770

Unemployment Rate

11.7% 0.2% 5.6%

ProblemsOverstate - Above actual

Cash workers !

Understate - Below actual Discouraged workers

Country Comparison

Saudi U.S China

Unemployment Rate 11.7% 7.9% 4.1%

Participation Rate 38.0% 63.3% 74.2%

Natural Rate of Unemployment

The normal rate of unemployment around

which the unemployment rate fluctuates

Cyclical Unemployment

The deviation of unemployment from its

natural rate

Unemployment

Frictional Seasonal Structural

!

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 Consequence Moral Hazard

May prolong unemployment

Why are wages too high?

Minimum wage laws Unions

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 workers 30 jobs

no unemployment

Minimum Wage 40 workers

20 jobs 20 unemployed

workers

Minimum Wage 20 workers get a raise 10 workers

lose job 10 new

unemployed workers

Minimum Wage

Efficiency Wages

Higher wages make more productive

employees

Efficiency Wages

Employee Wage Pizzas Productivity Wage per Pizza

Ali 100 5 20.0

Abdullah 200 12 16.7

Efficiency Wages

More Healthy Lower Turnover Higher Quality

More Effort