Chapter 14: Unemployment By Jonathan Jones

Costs of Unemployment Economic –Personal costs include: Income that a person would make if employed. –Societal costs include: the G&S that could have been produced by the unemployed. Noneconomic –Individuals experience stress, anxiety, depression. –These costs are difficult to quantify.

Counting the Unemployed The unemployed are measured by the unemployment rate. Unemployment rate = (# of employed people / CLF) x 100 CLF=Civilian Labor Force. The CLF is all people working added to all those without a job looking for work.

Demographics You are unemployed if you: – have no job, were available to work, looked for work in the last month. Also, people waiting to be rehired or waiting to start a job within 30 are counted. Disparity in unemployment can be seen when calculations are made for different demographics. –Teenagers are 3 times more likely to be unemployed –Females are slightly less often unemployed. –Blacks 2 times more likely to be unemployed than whites.

Types of Unemployment Frictional: Temporary unemployment because of job- search process. Structural: Caused by changes in the economy. –Caused by progress in technology or in demand for goods and services. –Technology creates new jobs and eliminates old ones. Cyclical: Caused when level of economic activity falls. –When firms reduce output, they lay off workers. –Considered to be negligible.

Full Employment Full employment rate of unemployment: The frictional rate of unemployment + the structural rate of unemployment. It is the lowest rate consistent with a nonaccelerating inflation rate. –AKA, Natural rate of unemployment. –Changes slowly due to changes in labor force composition.

Policies to reduce unemployment Reducing cyclical unemployment: –As business cycles expand and contract unemployment rises and falls. –Expansionary fiscal policy allowing for government purchases or reduction of taxes increases aggregate demand which will cause output and employment to rise during contraction periods.

Cont. If aggregate demand increases in small amounts we will level back out at unemployment equilibrium. But, if increases are made to quickly price levels will increase as well causing inflation. To reduce cyclical unemployment and have a steady price level stabilization policies are used. –These policies are hard to manage because the government doesn’t know how much money to spend, as well as their policy taking too long to enact. –These problems lead to inflation.

Reducing Structural Unemployment Achieved by retraining displaced workers. Provide subsidies to firms that are willing to retrain workers. Help workers relocate to were their jobs still exist.

Reducing Frictional Unemployment To reduce frictional unemployment employers require better information about job vacancies and job seekers’ abilities. This can be problematic, with more workers available and new jobs available jobs will experience more turnover because it is easier to find a new job and easier to fire trouble workers.

Minimum Wage As minimum wage increases the number of workers decreases from the equilibrium at N0 to N1. The firms reduce their employee base to counter the now higher cost of production. As the minimum wage increases so do the number of people seeking a job. This is were N2 intersects the minimum wage line.