Unemployment The two major views on unemployment are: The "Keynesian" view of Unemployment: Unemployment is an excess supply of labor resulting from a.
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unemployment The two major views on unemployment are: The "Keynesian" view of Unemployment: Unemployment is an excess supply of labor resulting from a failure of coordination in the market economy. The "Classical" view of Unemployment: Unemployment is job search -- people engaged in the productive work of looking for a better match between worker and employer.
Unemployment Unemployment rates are counter-cyclical. They have not been rising over time.
Measuring Unemployment Each month the Bureau of Labor Statistics polls over 50,000 households. polls over 50,000 households. http://www.bls.gov/eag/eag.map.htm http://www.bls.gov/eag/eag.map.htm Respondents of the survey are classified into one of three categories: unemployed, employed, or not in the labor force.classified into one of three categories
The Employed To be classified as employed, one must meet the following criteria: –must have worked at a job for pay or profit during the survey week (the week that contains the 19th of the month), or –must have worked without pay for more than 15 hours in a family business. –If one did not work at all during the survey week, then he or she could still be counted as employed if the reason for not working was due to illness, vacation, child care problems, and a few others.
The Unemployed To be classified as unemployed, one must meet the following criteria: –do not have a job, –have actively* looked for work in the prior 4 weeks,(or laid off) and –are currently available for work. *“Actively” seeking a job means more than simply looking at want ads.
Not in the Labor Force To be classified as not in the labor force, persons age 16 and over must meet the following criteria: –do not have a job, –have not actively looked for work in the prior 4 weeks, or –currently unavailable for work.
Reasons Job Losers Job leavers completed temp jobs Reentrants New Entrants
Calculating the Unemployment Rate The unemployment rate is the percentage of the labor force that is unemployed. Unemployment Rate = Unemployed × 100 Labor Force
Criticisms of the Unemployment Rate Survey does not count discouraged workers as unemployed. Understates unemployment. Survey does not account for hidden unemployment. Hidden unemployment includes those who are involuntarily working part-time, and those who are grossly overqualified for their positions. Understates unemployment. The survey does not check the accuracy of survey responses to active job search. Respondents could lie. Overstates unemployment.
Types of Unemployment Frictional unemployment: Unemployment due to the natural movements in and out of the labor force. (Short term - voluntary). Structural unemployment: Unemployment due to changing technology, shifting comparative advantage, and international competitiveness. Cyclical unemployment: Unemployment due to the downturn in the business cycle.
The Natural Rate of Unemployment The Natural Rate of Unemployment: Frictional and structural unemployment are natural in a dynamic economy. Together they make up the natural rate of unemployment. This is estimated to be between 5% and 5.5%. ONE goal of macroeconomic stabilization policy is to eliminate cyclical unemployment.
NAIRU Non Accelerating Inflation Rate of Unemployment Rather than a ‘natural rate’ this is the modern view that we should have some unemployment but not so low as to Accelerate Inflation
Why unemployed Excess supply Keynesian wage stickiness and lack of aggregate demand - a model we have to build.
Cost of Unemployment cost of unemployment = potential - actual output output where potential output is the level of GDP the economy would attain if all resources were fully employed. The economic cost of unemployment are the goods and services that might have been produced and consumed that are lost forever.
Okun’s law http://economics.about.com/finance/econom ics/library/weekly/aa120799.htm http://economics.about.com/finance/econom ics/library/weekly/aa120799.htm