Macroeconomics Lecture 5

Macroeconomics
Unemployment
Lecture 4
Chapter 28

Lecture Objectives Unemployment

 Describe unemployment, why it is a
A situation where
problem and types of unemployment.
some people are willing
 Learn how unemployment is measured. and able to work, but are
unable to find paid employment
 Explain reasons for natural
unemployment.

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Macroeconomics Lecture 5

Types of Unemployment
Why Unemployment Is a Problem?
There’s always some unemployment, though the u-
Unemployment results in
rate fluctuates from year to year.
 Lost incomes and production  Natural rate of unemployment:
the normal rate of unemployment around which the
 Lost human capital
actual unemployment rate fluctuates
 Cyclical unemployment:
 the deviation of unemployment from its natural rate
 associated with business cycles

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U.S. Unemployment, 1960-2007

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Natural Rate of Unemployment
Unemployment rate
10 Even when the economy is doing well, there is always
percentage of labor force

some unemployment, including:

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Frictional unemployment
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 occurs when workers spend time searching for the
jobs that best suit their skills and tastes
4 Natural rate of  short-term for most workers
unemployment
Structural unemployment
2
 occurs when there are fewer jobs than workers in
0 some labor market
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005  usually longer-term
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Macroeconomics Lecture 5

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How is Unemployment Measured?

 BLS regular survey of 60,000 households
 Based on the answers to the survey
questions: working-age population (adults
16 or more in US, 15 in Vietnam) are
placed into one of three categories
 Employed
 Unemployed
 Not in the labor force

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Macroeconomics Lecture 5

How is Unemployment Measured?

 Employed: if the previous week
 In USA: paid employees, self-employed,
and unpaid workers in a family business
 In Vietnam: spent 1 hour working at a paid job
or family business.
 Unemployed: if
 Not working
 looking for a work during past 4 weeks, or
waiting to be called back to laid-off, or start a
new job
 Available for work
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How is Unemployment Measured?

Example: the US labor force
categories in Jun 2012:
Population: 314 million
Working-age population:
243.4 million
Labor force: 155.0 million
Employed: 142.2 million
Unemployed: 12.8 million

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Macroeconomics Lecture 5

How is Unemployment Measured? Labour Market Indicators

US labor force in Jan 2015 released on BLS website
 The unemployment rate
‘000
Civilian noninstitutional population 249,723

Civilian labor force 156,050 U/E rate = Unemployed / Labour force

Participation rate 62.5

Employed 146,552
 The labor-force participation rate (LFPR)
Employment-population ratio 58.7

Unemployed 9,498

6.1
LFPR = Labour force / Adult population
Unemployment rate
Not in labor force 93,674

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US Labor-Force Experiences of
Various Demographic Groups (1998)
Demographic Unemployment Labor-Force
Group Rate Participation Rate
Adults (20+)
White, male 3.2 77.2
White, female 3.4 59.7
Black, male 7.4 72.5
Black, female 7.9 64.8
Teenagers (16-19)
White, male 14.1 56.6
White, female 10.9 55.4
Black, male 30.1 40.7
Black, female 25.3 42.5
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Macroeconomics Lecture 5

Labor Market Statistics by Education Level,

June 2008
US Labor-force Participation

Labor-force Participation
100
Rates Since 1950
Adults (25 yrs & older)

Rate (in percent)

Men
u-rate LF part. rate 80

less than h.s. 8.7% 45.9%

60

h.s. diploma 5.1 62.8

40 Women
some college or
4.2 71.9
assoc degree
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bachelor’s
2.3 78.1
degree or more 0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 ’98
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Labour Market Indicators Measurement Issues

Vietnam labor and employment as of Q2 2014  The u-rate is not a perfect indicator of
 Employed = 53.3 joblessness or the health of the labor market:
 Unemployed = 1.0  It excludes discouraged workers.
 Not in the labour force = 15.4  Some people misreport their work status in
the BLS survey.
 Labour Force
 It does not distinguish between full-time and
 Adult population part-time work, or people working part time
 Unemployment rate because full-time jobs not available.

 Labour force participation rate

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Macroeconomics Lecture 5

Measurement Issues Measurement issues

 BLS Alternative measures of labor underutilization: In each of the following, what happens to the u-rate?
Not
seasonally Does the u-rate give an accurate impression of what’s
Measure adjusted
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor 2.7
happening in the labor market?
force
U-2 Job losers and persons who completed temporary jobs, as a percent of the
civilian labor force
3.1 A . Huong just graduated and start looking for a job.
U-3 Total unemployed, as a percent of the civilian labor force (official
unemployment rate)
6.1
B. Lan, a tailor who has been out of work since her
U-4 Total unemployed plus discouraged workers, as a percent of the civilian
labor force plus discouraged workers
6.5 company closed last year, becomes discouraged
U-5 Total unemployed, plus discouraged workers, plus all other persons
marginally attached to the labor force, as a percent of the civilian labor force 7.4
and gives up looking for work.
plus all persons marginally attached to the labor force
U-6 Total unemployed, plus all persons marginally attached to the labor force, C. Nam, the sole earner in his family of 5, just lost his
plus total employed part time for economic reasons, as a percent of the civilian 12.0
labor force plus all persons marginally attached to the labor force $80,000 job as a research scientist. Immediately,
he takes a part-time job at restaurant until he can
 GSO: Underemployment rate find another job in his field.
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Why is There Unemployment Why is There Unemployment

 Natural U/E = Frictional U/E + Structural U/E  Frictional unemployment:
 Cause of Frictional U/E: Job search unemployment that results from the
 Cause of Structural U/E: Above-Equilibrium time that it takes to match workers with
Wage
jobs or for workers to search for the jobs
best suited for them.

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Macroeconomics Lecture 5

Job Search Unemployment True meanings of…

 Job search  Flexible hours: ?

 Negotiable salary:?

 Provide training opportunities:?

 Job search unemployment
 Dynamic working environment:?

 Transparent promotion path:?

 …hmm can someone translate these into

Vietnamese please?

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Job Search Unemployment The Inevitability of

Job Search Unemployment
 Different from the other types of  The economy is always changing.
unemployment.  Sectoral shifts: changes in the composition of
 not caused by a wage rate higher than demand among industries or regions
equilibrium.  It takes time for workers to search for
 caused by the time spent searching for the and find jobs in new sectors.
“right” job.

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Macroeconomics
Public Policy and Job Search
 Government programs to reduce
searching time:
 Government-run employment agencies
 Public training programs
 Unemployment insurance
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Public Policy and Job Search
 Unemployment insurance: partially
protect workers’ incomes when they
become unemployed.
 Offer workers partial protection against job
losses.
 Offer partial payment of former wages for a
limited time to those who are laid off.
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Lecture 5
Public Policy and Job Search
 Government-run employment agencies:
provide information about job vacancies
in order to match workers and jobs more
quickly.
 Public training programs: ease the
transition of workers from declining to
growing industries and to help
disadvantaged groups escape poverty.
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Public Policy and Job Search
 Effects of Unemployment insurance:
 Increase the amount of search
unemployment.
 Reduce the search efforts of the unemployed.
 Improve the chances of workers being
matched with the right jobs.
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Macroeconomics Lecture 5

Why is There Unemployment Minimum-Wage Laws

 Structural unemployment occurs when
the quantity of labor supplied exceeds
When the minimum
the quantity demanded. wage is set above the
 Cause of Structural Unemployment: level that balances supply and
Above-Equilibrium Wage due to:
demand, it creates unemployment.
 Minimum-wage laws
 Unions
 Efficiency wages

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Unemployment from a Wage

Above the Equilibrium Level Unions and Collective Bargaining
Wage  A union: a worker association that
Surplus of labor =
Unemployment
Labor
supply
bargains with employers over wages and
Minimum
working conditions.
wage
 Collective bargaining: process by which
WE
unions and firms agree on the terms of
employment
Labor  A strike: withdrawal of labor from the
demand
firm, organized if the union and the firm
0 LD LE LS Quantity cannot reach an agreement.
of Labor
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Macroeconomics Lecture 5

Unions and Collective Bargaining

 Collective bargaining  above
equilibrium wages for their members.
 Unionized workers: reap the benefits - in
Australia: earn up to 10 percent more than
nonunion workers
 Non-unionized workers: bear costs -
unemployed at higher wages.

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Unions and Collective Bargaining Theory of Efficiency Wages

 Are Unions Good or Bad for the Economy?  Efficiency wages

 Critics’ ideas: causing inefficient and
inequitable allocation of labor
 Advocates’ ideas: a necessary antidote/  Theory of efficiency wages
remedy to the market power of firms that hire
workers.

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Macroeconomics Lecture 5

Theory of Efficiency Wages Why is There Unemployment

 Reasons for using efficiency wages  Natural U/E = Frictional U/E + Structural U/E
 Worker Health  Cause of Frictional U/E:
 Job search
 Worker Turnover:  Cause of Structural U/E: Above-Equilibrium
Wage due to:
 Worker Effort  Minimum-wage laws
 Unions
 Worker Quality  Efficiency wages

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Lecture Review

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