1. Unemployment and the Business Cycle
Contraction
Recovery/Expansion
Trough
Peak

2. Labor Force
Labor force – total number employed + unemployed adult workers
Complete pool of U.S. workers
Who qualifies for the labor force?
Adult Non-Institutionalized Civilian Population
Over the age of 16
Not in the military
Not in jail or prison
Not living permanently in nursing homes, or in an other “institution”.

3. Labor Force Who is not in the labor force? Children under 16
Full-time student (not looking for a job)
Homemaker
Retiree
Jailed Person or other “institution”
Military personnel

4. Employed
Employed – number of adult civilians (over 16) who are working and on a payroll of some type.
Full-time and part-time workers
Business owners (entrepreneurs sole proprietors)
Unpaid workers in a family business
People on a leave of absence (maternity, illness, etc.)

5. Unemployed
Unemployed – adults that are not working but are actively seeking work
Looking for work within the past 4 weeks

6. Types of Unemployment
Frictional
Seasonal
Structural
Cyclical

7. Types of Unemployment
Frictional Unemployment – caused by movement in the economy. It is always present in the economy, resulting from temporary transitions made by workers and employers
When people move in order to find a job
Someone graduates and looks for a job
Stay at home parent goes back to work

8. Types of Unemployment
Seasonal Unemployment – occurs as a result of seasonal change or when industries slow or shut down for a season
Summer Waves lifeguard (no winter waves)
Santa during the holidays
UPS workers during busy holiday season

10. Types of Unemployment
Structural Unemployment – jobs that are permanently lost; workers skill do not match the jobs that are available or in demand
Jobs that no longer exist, are not coming back
Building a new economic structure
Machines replacing workers
Jobs sent to other countries (outsourcing)

11. Types of Unemployment
Cyclical Unemployment – rises during economic downturns and falls when the economy improves (caused by changes in the business cycle)
Contractions – unemployment rises
Expansion – unemployment falls

12. Labor Force Labor-force participation rate = LF/AP X 100 LF = E + U
2012, labor force (in millions), (E) (U) = 154 (LF)
Unemployment Rate – number of unemployed divided by the labor force multiplied by 100
U/LF X 100
Unemployment rate = (12.8/154) X 100 = 7.8%
Labor-force participation rate – percentage of the adult population that is in the labor force
Labor-force participation rate = LF/AP X 100
January 2012,labor-force participation rate = (154/243) X 100 = 64%

15. Natural Rate of Unemployment
Natural rate of unemployment – unemployment rate of 5 to 6 percent is considered a normal/healthy economy
July 2008 – 5.8%
The unemployment rate in the United States was last reported at 8.3 percent in January of 2012
From 1948 until 2010 the United States' Unemployment Rate averaged 5.70 percent reaching an historical high of percent in November of 1982 and a record low of 2.50 percent in May of 1953.

16. Full Employment
Full Employment – is at the natural rate of unemployment, 5-6%
Zero unemployment is not an achievable goal
Unemployment rate in the early 2000’s, 3.8% was indication of economy dealing with inflationary conditions; over-performing economy

18. Underemployed and Discouraged Workers
Underemployed Workers – working at a job for which one is overqualified, or working part-time when full-time work is desired
Discouraged workers – a person who wants a job, but has given up looking (do not count against unemployment rate)
Dropped out of the labor force (retired, living with parents, back to school, etc.)

19. Video – Types of Unemployment http://www. youtube. com/watch

20. Video – Hedge Fund to Pizza Delivery http://www. youtube. com/watch

21. Calculating Unemployment

22. Unemployment Rate Cartoon

23. Unemployment Examples
Is your retired grandfather unemployed? 
Is a woman that stays home with her kids unemployed? 
A thief serving time in prison lost his job when he was convicted. Is he unemployed? 
An aunt serving in the Armed Forces is posted in Iraq. Is she employed? 
Is a full-time college student who is looking for a job unemployed? 
Are you unemployed? 
[No. While he is not working, he is also not looking for work.]
[No. While she may not be working outside the home, she is also not looking for work.]
[No. Those serving time in prison are not in the adult population and hence not in the labor force.]
[No. She is not a member of the civilian labor force because she serves in the military]
[Yes, they actively looking for a job and thus counted in the labor force.]
[Depends on individual situations.]

24. Types of Unemployment Chart
Unemployed
Type of Unemployment
1. A computer programmer is laid off because of a recession.
2. A literary editor leaves her job in New York to look for a job in San Francisco.
3. An unemployed college graduate is looking for his first job.
4. Advances in technology make the assembly-line worker’s job obsolete.
5. Slumping sales lead to a cashier being laid off.
6. Workers are laid off when the local manufacturing plant closes because of a downturn in the economy.
7. A company outsources their jobs to China and domestic workers lose their jobs.
8. Summer ends and local teens lose their jobs.
Cyclical Unemployment
Frictional
Frictional
Structural
Cyclical
Cyclical
Structural
Seasonal

25. Calculating the unemployment rate
Use the following formula to calculate the unemployment rate:
Unemployment rate = Number of people unemployed X100
labor force
, the number of people unemployed = 9.4 million
Number of people in the civilian labor force = million
_________ ÷ _________ = _________
_________ x 100 = __________
.064
.064
6.4%
2. In 2012, the number of people unemployed = million
Number of people in the civilian labor force = million
_________ ÷ _________ = _________
_________ x 100 = __________
.097
.097
9.7%

26. Review - Unemployment Statistics
The country of Ecoland has collected the following information:
Adult Population 240,000
Employed 180,000
Unemployed 30,000
Determine the following:
1. Labor Force = __________ + _______ = _____________
2. Unemployment rate = (_________/_________) X 100% = ______
3. Labor-force participation rate = (_______/_______) X 100% = _______
180, , ,000
30, ,000
14.3%
210, ,000
87.5%

27. What can cause unemployment to remain high?
Unemployment Checks
Minimum wage
Unions and Collective Bargaining
Efficiency Wages

28. Public Policy and Causes of Unemployment
Unemployment insurance - government program partially protects workers’ incomes when they become unemployed
Eligible – people who are laid off through no fault of their own
Ineligible – people who quit, were fired for cause, or just entered the labor force
Argument against U.I. is that it Increases frictional unemployment

29. Unemployment Insurance

30. 99ers Video

31. Life and Death of Ashboro

32. Minimum-Wage Laws Minimum-wage laws can cause unemployment
Forces the wage to remain above the equilibrium level
Increases the quantity of labor supplied
Decreases the quantity of labor demanded
Surplus of labor – unemployment

33. Unemployment from a wage above equilibrium level

34. Unemployment from a wage above equilibrium level
Surplus of labor = Unemployment
Labor
supply
Minimum wage
Labor
demand LD LS WE LE
Quantity of Labor

35. Unions and Collective Bargaining
Unions – legally recognized as representatives of workers in many industries
Address issues such as collective bargaining over wages, benefits, and working conditions for their membership
Represent their members if management attempts to violate contract provisions
Collective Bargaining - a process of negotiations between employers and the representatives of employees aimed at reaching agreements that regulate working conditions
Wage scales, working hours, training, health and safety, overtime, grievance mechanisms, etc.

36. Unions and Collective Bargaining
Unions raise the wage above the equilibrium level; this can lead to unintended consequence of increases in unemployment
Better off: employed workers (insiders)
Worse off: unemployed (outsiders)
May stay unemployed (increasing unemployment)
Take jobs in firms that are not unionized

38. Efficiency Wages
Efficiency wages – above-equilibrium wages paid by firms to increase worker productivity
Worker health - better paid workers eat a more nutritious diet healthier and more productive
Worker turnover – firm can reduce turnover among its workers by paying them a high wage
Worker quality – firm pays a high wage attracts a better pool of workers increases the quality of its workforce
Worker effort - high wages make workers more eager to keep their jobs give workers an incentive to put forward their best effort

39. Chapter 28 Practice Review
a. What is the labor force in 2004 and 2005?
Answer:
2004: = million
2005: = million
b. What is the labor force participation rate in 2004 and 2005?
2004: (112.6/168.2) x 100 = 66.9%
2005: (112.3/169.5) x 100 = 66.3%
c. What is the unemployment rate in 2004 and 2005?
2004: (7.4/112.6) x 100 = 6.6%
2005: (8.1/112.3) x 100 = 7.2%

40. Chapter 28 Practice Review
d. From 2004 to 2005, the adult population went up while the labor force went down. Provide a number of explanations why this might have occurred.
Answer: Earlier retirements, students staying in college longer, more parents staying at home with children, discouraged workers discontinuing their job search.
e. If the natural rate of unemployment in Employment Country is 6.6
percent, how much is cyclical unemployment in 2004 and 2005? Is
Employment Country likely to be experiencing a recession in either of
these years?
Answer:
2004: 6.6% – 6.6% = 0%
2005: 7.2% – 6.6% = 0.6%
In 2004, unemployment is "normal" for Employment Country; therefore, there is no recession.
However, in 2005, unemployment is above normal (positive cyclical unemployment), so
Employment Country may be in a recession.

42. Chapter 28 Practice Review

43. Due Today – 11-14 Mankiw Practice Review Worksheet
Identifying Unemployment
Understating Unemployment
Daily Tens
Notes
Terms Chapter 28

44. Please include on test Name Date – 11-13 Class Period Chapter 28 Test
ID: A, B, C

45. Extra Credit
Give a scenario of someone that would be eligible for unemployment checks; what would disqualify someone from eligibility?
Draw a supply and demand graph showing how the minimum wage causes unemployment.
Explain your interpretation of the political cartoon (Illustrator’s message, symbols etc.)