Unemployment

Two phases of the business cycle Expansion – recovery from a recession Recession – when GDP is declining for at least 6 months in a row If the recession becomes too severe, we enter into a depression

Leading Indicators Change before real GDP changes. Used to forecast changes in output. 1. Average workweek 5. New building permits 2. Unemployment claims 6. Delivery times of goods 3. Manufacturers’ new orders 7. Interest rate speed 4. Stock prices 8. Money supply 5. New plant and equipment 9. Consumer expectations orders

Co-incident Indicators Change at the same time as real output changes. 1. Payroll employment 2. Industrial production 3. Personal income 4. Manufacturing and trade sales

Lagging Indicators Changes after the value of real GDP has changed 1. Labor cost per unit of output 2. Inventories to sales ratio 3. Unemployment duration 4. Consumer credit to personal income ratio 5. Outstanding commercial loans 6. Prime Interest rate 7. Inflation rate for services

Labor Force Who is included? Anyone over 16 who is either employed or actively looking for a job Who is considered unemployed? Anyone who does not have a job but has made an effort to find a job within the past month.

Not Part of the Labor Force Stay at home parents “Discouraged Workers” Military Retirees Children

Are the following included in the unemployment rate? Jim is a sixty-five-year-old man who retired after forty years of working at IBM. He's looking for a part-time job at a bookstore to keep himself busy. Laura is a forty-year-old investment banker who was laid off six months ago. She decided to switch careers and has spent those six months figuring out what she wants to do next instead of applying for jobs in the banking field. Tom is a thirty-year-old accountant who quit his job so he could go to business school. Molly is a thirty-six-year-old mother of three who works part-time as a tutor. Mike is a fifty-year-old father of two who has been working part- time while raising his kids. He has been looking for full-time work without success for over a year.

Unemployment Rate The unemployment rate is determined by dividing the number of unemployed people by the labor force.

Unemployment

Memphis Unemployment Rate

Types of Unemployment Frictional unemployment: includes workers who are either searching for jobs or waiting to take jobs in the near future. Example: A college student graduates but doesn’t start a job for a month Example: A truck driver quits her job for one company because she thinks there is a better driving route with a competitor, Structural unemployment: is caused by changes in the structure of demand for consumer goods and in technology. This category includes workers who are unemployed because their skills are not demanded by employers, because they lack sufficient skills to obtain employment, or because they cannot easily move to locations where jobs are available. Example: Bottle-making machines replaced glass blowers Example: Airline mergers displaced many airline workers in the 1980’s Example: Foreign competition has led to downsizing in U.S. Industry and loss of jobs Example: Military cutbacks led to displacement of workers in military- related industries

Types of Unemployment Cyclical unemployment: s caused by the recession phase of the business cycle, that is, by a deficiency of total spending. As the overall demand for goods and services decreases, less labor is needed, so employment falls and unemployment rises Example: As the housing boom of the early 21st century slows, unemployment in related industries like builders and real estate agents increases. Seasonal unemployment: A product of regular, recurring changes in the hiring needs of certain industries on a monthly or seasonal basis. Example: Holiday workers

Full Employment Occurs when there is no cyclical unemployment present in the economy Associate with the Natural Rate of Unemployment (NRU). The level of unemployment experienced when the economy is producing at its full potential The United States’ NRU is approx. 4%-5% Associate Full Employment (FE) with the PPC, the long-run aggregate supply (LRAS) and the long-run Phillips curve (LRPC)