Step 13: Who's broke? (End of Unit 2)

Unemployment

-% of people who don't have a job but are part of the labor force

Labor Force

-# of people classified as either employed or unemployed

Unemployment Rate

-Calculated by:

[# of Unemployed/(# of Unemployed  +  # of Employed)]  x  100

-Not in the labor force:

• kids
• retired people
• military personnel
• mentally insane
• incarcerated
• stay @ home parents
• full-time students
• discouraged workers: anyone looking for work but has no job

Full Employment (FE)

-Occurs when there's no cyclical unemployment present in the economy
-Natural rate of Unemployment (NRU)  =  4-5%
-Achieved when labor markets are balanced

Pros and Cons to unemplyment

Pros:
-There is less pressure to raise wages
-More workers are available for expansion

Cons:
-Not enough consumption (GDP)
-Too much poverty
-Too much governmental assistance

Okun's Law

-for every 1% of unemployment above the natural rate of unemployment, causes a 2% decline in GDP

Structural Unemployment  +  Frictional Unemployment

Types of Unemployment

-Good/Okay

• Frictional: Voluntary; b/t jobs b/c you choose a new lifestyle, opportunity, and/or education level
• Seasonal: People wait for the right season to conduct their trade

-Bad

• Cyclical: Associated w/ downturns in business cycles; bad for society and the individual
• Structural: Associated w/ lack of skills or decline in industry or change in technology

Official Employment Statistics

Start with total population of the U.S.

-subtract those under 16

-subtract those in the armed forces

-subtract those that are institutionalized

This leaves the "Non Institutional Adult" population

-subtract those that are already retired

-subtract homemakers

-subtract full-time students over 16

-subtract the discouraged

This leaves the "Civilian Labor Force"

-count employed full or part-time

-count employed unpaid workers in the family business

-count those on sick leave, on strike, or on vacation

-count unemployed, but are actively looking for work

This becomes the "Unemployment Rate" in %

0 - 3% : overextended economy, war economy

4 - 5% : "Full Employment" Unemployment Rate (Efficient)

6 +% : "Weak" Economy or "Recession" Economy

25 % : Highest official unemployment rate in 1933