27/06/2023

Topic Outline
• Phillips Curve
• Okun’s Law
UNEMPLOYMENT • Impact of Unemployment
ECON 55: MACROECONOMICS • Kinds of Unemployment
• Measuring Joblessness: The Unemployment Rate

Prepared by:
Jen Imee B. Dioneda
Instructor, Department of Economics

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Phillips Curve
AW Phillips, a British economist,
conducted a study in the United Kingdom
in the period of 1861 to 1957 about
money wages, inflation, and
unemployment. The theory was developed
in 1958.
AW Phillips quantified the
determinants of wage inflation. He found an
inverse relationship between unemployment
and the change in money wages (inflation).
Wages tend to rise when unemployment was
low. Workers would press less strongly for
wage increases when fewer alternative jobs
were available, and firms would resist wage
demand more firmly when profits were low.
SOURCES: Philippine Statistics Authority (PSA) & PhilStar Global

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 27/06/2023

Okun’s Law Impact of Unemployment

Arthur Okun was a Yale professor and economist who studied the 1. Economic
relationship between unemployment and production. As a Keynesian
economist, Okun advocated for using fiscal policy to control inflation and • It is a waste of variable resources.
stimulate employment. He first proposed the relationship between • When the unemployment rate grows up, the economy is in effect throwing
unemployment and a country's GDP in the 1960s. In general, Okun's findings away all goods and services that the unemployed workers could have
demonstrated that when unemployment falls, the production of a country will produced.
increase.
2. Social
Okun’s Law states that for every 2 percent that GDP falls, the • It is a resource of enormous suffering, as unemployed workers struggled
unemployment rate rises by one percentage point. Example: If GDP with reduced income.
begins at 100 percent of its potential and falls to 98 percent of potential
GDP, the unemployment rate rises by 1%, say from 6% to 7%. Okun’s Law
provides the vital link between the output market and the labor market.

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Unemployment
Employment
Unemployment is categorized as follows:
The employment rate is one indicator used in determining the four (4) phases
of the business cycle. Prosperity for instance is determined if there is full • Frictional Unemployment
employment. There is full employment when there is an available job for every • Structural Unemployment
person who is willing and able to work. This definition does not necessarily
mean zero unemployment. Even about 6% of the labor force are unemployed, • Cyclical Unemployment
this can still be considered as full employment.
• Seasonal Unemployment
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 • Societal Unemployment
𝑬𝒎𝒑𝒍𝒐𝒚𝒎𝒆𝒏𝒕 𝒓𝒂𝒕𝒆 =
𝐿𝑎𝑏𝑜𝑟 𝐹𝑜𝑟𝑐𝑒 • Voluntary Unemployment
• Involuntary Unemployment

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Measuring Unemployment Measuring Unemployment

One aspect of economic performance is how well an economy uses its
resources. Because economy workers are its chief resource, keeping workers
employed is a paramount concern of economic policymakers. The unemployment
rate is the statistic that measures the percentage of those people wanting to
work who do not have jobs. Every quarter, the Philippine Statistics Authority
(PSA) computes the unemployment rate and many other statistics that
economists and policymakers use to monitor developments in the labor market.

Those 15 years old and over are placed in one of the three categories:
• Employed
• Unemployed
• Out of the Labor Force
• Labor Force

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Thank you!

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