February 09, 2017

Unemployment rate

• Percent of people in the labor force who want a job but are not working
• Formula: (# of unemployed/# in labor force)*100

Labor force

• Number of people in a country that are classified as either employed or unemployed

Employed

• Anyone who works at least one hour a month
• Anyone considered temporarily absent from work
• Part time workers

Not in labor force

• Kids
• Full time students
• People in mental institutions
• Military personnel
• Stay at home parents
• Retirees
• people that are incarcerated (6 months or more)
• discouraged workers (mentally/psychologically beaten down from not getting a job)

Standard unemployment rate

• 4-5%
• If higher than 5%, worrisome
• 4% is ideal

Types of unemployment

• 1) Frictional unemployment - “Temporarily unemployed” or being between jobs, individuals are qualified workers with transferable skills but they aren’t working

Example: leaving one job for a better job

• 2) Seasonal unemployment - specific type of frictional unemployment which is due to the time of year and the nature of the job , these jobs will come back
• 3) structural unemployment - changes in the structure of the labor force make some skills obsolete, workers do not have transferable skills and these jobs will never come back, workers must learn new skills to get a job, the permanent loss of these jobs is called “creative destruction”
• 4) cyclical unemployment - unemployment that results from economic downturns (recessions); as demand for goods and services falls, demand for labor falls and workers are fired

Natural rate of employment

• Formula: frictional + structural

Full employment

• Means no cyclical unemployment
• 80-90% factory capacity so economists generally agree that an unemployment rate around 4-5% is full employment