2. Employment Statistics Employed You have a job (even if part time) Unemployed “Jobless, looking for jobs, and available to work” Must be ACTIVELY searching during the past 4 weeks Labor Force Sum of the employed and unemployed Institutionalized (students, military, inmates) are excluded

3. Natural Rate of Unemployment Expansion…unemployment↓ Recession…unemployment ↑ (but not always!) There is still a level of unemployment even when jobs are plentiful Even in the best of times, jobs are constantly being created and destroyed The job market is constantly fluctuating Also called FULL EMPLOYMENT

4. Problems with the Unemployment Rate The figure itself is an estimate based on random sampling of 60,000 households scaled up Tends to understate the true level (though it can overstate it as well!) Discouraged workers Marginally attached workers Underemployed workers These are not accounted for in the standard unemployment statistics

5. Three Types of Unemployment There are three different types of unemployment that describe how jobs are constantly being created and destroyed Frictional Structural Cyclical

6. Frictional Unemployment Unemployment due to the time workers spend in the job search “in between jobs” or seeking first job Typically by choice Somewhat desirable-indicates mobility

7. Structural Unemployment Losing a job to changing structure of the economy The skill-set is no longer in demand by the nation’s producers Somewhat desirable-indicates productivity and efficiency

8. Cyclical Unemployment Results from a fall in total demand for a nation’s output Associated with the recession phase in a business cycle

9. Determining Unemployment Employed + Unemployed = Labor force Labor force participation rate: Labor force X 100 Population 16-64 Unemployment rate: Number of unemployed X 100 Labor force

10. Changes in Natural Rate of Unemployment Natural rate of unemployment: “normal rate” NRU = Frictional + Structural Actual Unemployment Rate = Natural + Cyclical Natural rate changes over time as a result of: Changes in Labor Force Changes in Labor Market Changes in Government Policy

11. Okun’s Law Recessions are linked to rising unemployment; expansions see falling unemployment (in the long run) The economic cost of unemployment is measured as the GDP gap—the amount of sacrificed output Okun’s Law – About a 2% decrease in output (GDP) for every 1% increase in unemployment Okun’s Law is based on observation, not theory, so it is approximated and has been adjusted a little over time