Labour Force & Unemployment

Unemployment Defined
Labor force: the number of working-age people available to work in a country
=> not in the labor force: not employed and not looking for work

The labor force has two components:

- Employed: working in a paid job part-time or full-time
- Unemployed: not employed but looking for a job, able to work, and available to work

Unemployment Types
Frictional unemployment is when a worker leaves a job voluntarily and needs some time to
find another.
Ex: a mother returning to the workforce after having a baby or someone relocating from one
city to another. It will take time for this person to find a new job.
=> Generally considered short-term.
=> If low, frictional unemployment is normal in a healthy economy and these unemployed
people find work quite easily

Structural unemployment is unemployed people who cannot get jobs because they lack
the skills and knowledge (skills gap).
=> It is a serious kind of unemployment because it's usually caused by big changes in
an economy.
=> Usually longer-term. People may be jobless for months or years => May drop out of the
workforce.

Seasonal unemployment is unemployment due to seasonal trends.

Cyclical unemployment: is unemployment caused by downturns in the business cycle.

(due to covid 19, people cannot go out to eat => chefs, and restaurant staffs are losing their
jobs)
=> During recessions or downturns in the business cycle, demand for products falls and
companies reduce their production and workers.
=> The biggest problem with cyclical unemployment is that no two cycles are the same in
terms of severity or length, so it's difficult to tell when jobs will come back.

The natural rate of unemployment (NRU): The amount of unemployment that exists when
the economy is healthy. When there is only frictional and structural unemployment.
=> Full employment is the condition that exists when the unemployment rate is equal to the
natural unemployment rate.

Unemployment Rate
The unemployment rate is the number of unemployed, divided by the total number in the
labor force:
Labor force participation rate: the proportion/percentage of the (working-age) adult
population that “participates” in the labor force