Unit Two: Unemployment

Vocabulary:

Unemployment - failure to use available resources, particularly labor, to produce desired goods and services

Population - number of people in a country

Labor Force - number of people in a country that are classified as either employed or unemployed

Groups of People:

Employed

• 16 years of age or older, that have a job
• Must work at least an one hour, every two weeks

Unemployed

• People who are 16 years of age or older, who do not have a job
• Have actively searched for a job in the last two weeks 

Not in the Labor Force

• Kids
• Full-Time Students
• Retirees
• Disabled
• Mentally Institutionalized People
• Incarcerated People
• Military
• Homemakers (Stay at home and take care of house/children)
• Discouraged Workers 

Formulas:

Unemployment Rate = (# of Unemployed) / (Total Labor Force) X 100

Total Labor Force = (# of Unemployed) + (# of Employed)

Types of Unemployment:

Frictional 

• People are temporarily unemployed, or "in between" jobs
• Individuals are qualified workers with transferable skills
• People who have a high school or college degree
• Want to find a better opportunity

Structural

• Changes in the structure of the labor force make some skills obsolete 
• Workers do not have transferable skills 
• Example: VCR Repairman, Typewriter Repairman
• Creative Destruction - as new jobs are created, old jobs are lost

Seasonal

• Work a certain time of the year
• Jobs will come back
• Examples: Lifeguards, Construction Workers, School-Bus Drivers, Santa, Easter Bunny 

Cyclical 

• Unemployment that results from economic downturns in the economy
• As demand for goods/services falls, demand for labor falls, and workers are laid off
• Example: Recession

Full Employment

• 4 to 5 % unemployment
• Only way to get it is if there is no cyclical unemployment 

NRU (Natural Rate of Unemployment) = Frictional +  Structural Unemployment

Okun's Law

• For every 1% by which the actual unemployment rate exceeds the natural rate of unemployment, Real GDP will fall by 2%

Rule of 70

• The number of years it takes for GDP to double
• Example: If the annual inflation rate is 2%, then how many years will it take for GDP to double? 70/2 = 35 Years