Unemployment

Unemployment: Percentage of people who do not have jobs that are in the labor force

Labor force is the number of people in a country that are classified as either employed or unemployed

Unemployment rate = # of unemployed/ # of employed + # of employed x100

Ideal employement rate 4%

Ideal inflation rate is 2-3%

Not in labor force:

1.       Kids

2.       Military personnel

3.       Mentally insane

4.       Incarcerated

5.       Retired

6.       Stay at home parents

7.       Full time students

8.       Discouraged workers

Types of unemployment:

Frictional: “between jobs” choose new opportunities/ choices/ lifestyles/ educational levels

Seasonal: waiting for the right season to go to work. Ex. Santa, lifeguard

Structural: technology changing associated with a lack of skills or a declining industry.

Cyclical: unemployment that occurs due to a swing in the economy, has to do with the business cycle ex. In a trough. Bad for society and individuals

Full employment occurs when there is no cyclical unemployment present in the economy

Natural rate of unemployment (NRU): ideal rate 4 to 5% unemployed.

Why is unemployment bad?

1.       Not enough consumption (GDP)

2.       Too much poverty

3.       Too much government assistance

Why is unemployment good?

1.       Less pressure to raise wages

2.       More workers available for future expansions

Okun’s law

For every 1% of unemployment above the NRU causes a 2% decline in real GDP