Unemployment Krugman Section 1 Module 3

Full Employment Unemployment Rate Full employment does not mean zero unemployment = to the total frictional and structural unemployment Called the natural rate of unemployment NRU

Measuring Unemployment Population is divided into 3 groups: 1. those under 16 or institutionalized 2. those “not in the labor force” Homemakers, “discouraged workers,” and full time students over the age of 16

3. labor force Employed and those looking for work Employed Full or Part Time—counted the week of the 12 th of the month Employed unpaid workers in a family business, if working over 15 hours Unemployed because they are actively looking for work but can’t find it

Unemployment Rate Measured by a random survey of 60,000 households nationwide Part-time workers are counted as employed (underemployed ) Discouraged workers are not counted (understate the unemployment rate) Unemployment rate = Unemployed/labor force X 100

The GDP Gap and Okun’s Law GDP gap is the difference between potential and actual GDP Okun quantified the relationship between unemployment and GDP as follows: For every 1% of unemployment above the natural rate, a 2% GDP gap occurs This is Okun’s law

Unequal Burdens of Unemployment Rates are lower for white-collar workers Teenagers have the highest rates African Americans have higher rates then whites On average, less educated workers have a higher unemployment rate Long term unemployment rate (15 weeks or more) is much lower than the overall rate male and female rates are comparable