Presentation on theme: "Unemployment and its Natural Rate"— Presentation transcript:
1 Unemployment and its Natural Rate Chapter 28Unemployment and its Natural Rate
2 A Roadmap for Chapter 28 Background Long Run vs. Short Run UnemploymentUnemployment - Generally SpeakingDeterminants of Long-Run Unemployment
3 Why Unemployment is Important? People who are unemployed not contributing to economy’s production.A country that keeps its workers as fully employed as possible achieve a higher level of GDP than the one who leaves many of them idle
4 Why Unemployment is Important? Adult population (15-64 years) covers the economically active age group in the populationLong-run vs. Short-run problem.
5 Labour ForceThe total number of workers, including both the employed and the unemployedLabour force = Number of employed + number of unemployed
6 Unemployment RateThe percentage of the labour force that is unemployedUnemployment rate
7 Labour force participation The percentage of the adult population that is in the labour forceThe labour force participation rate:
8 Labour Force Participation Rate Men100806040201950195519601965197019751980198519902000labour-ForceParticipationRate (in percent)1995Women
9 Figure 1 US Population and Unemployment, 2009 AdultPopulation(235.9 million)Employed(139.9million)labour Force(154.2 million)Unemployed (14.3 million)Not in labour force(70.1 million)
10 Unemployment in the Long-Run Natural Rate of Unemployment: is the rate of unemployment that the economy experiences even during normal times, that is, even when the economy is not in a recessionIt is also called economy’s long-run rate of unemployment
11 Unemployment in the Short-Run Cyclical Unemployment: year to year fluctuations in unemployment around its natural rate.Occurs during recessions.
12 Unemployment Long Run vs Short Run? The Natural Rate of Unemploymentthe long-run rate of unemploymentthe rate of unemployment when the economy is at “full employment”According to your book, about 5.5% (see next slide)
14 What is Unemployment?Compiled by a random monthly survey of 60,000 householdsTo be counted as part of the labour force, you must either:have a jobnot have a job, but is able to work and willing to work (actively searching)Based on the answers to the survey questions, the BLS places each adult into one of three categories:EmployedUnemployedNot in the labour forceThe BLS considers a person an adult if he or she is over 16 years old.A person is considered employed if he or she has spent most of the previous week working at a paid job.A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.A person who fits neither of these categories, such as a full-time student, homemaker, or retiree, is not in the labour force.
15 labour-Force Participation Rate Who is Unemployed?Demographic GroupUnemployment Ratelabour-Force Participation RateAdults (20 or over)White, male3.7%76.8%White, female3.6%50.2%Black, male8.0%72.1%Black, female7.0%65.4%Teenagers (15-19)13.8%54.1%11.4%52.8%30.5%38.0%27.5%37.4%
16 Problems With Our Measure of Unemployment? def: Discouraged workerspeople who would like to work but have given up looking for jobs after an unsuccessful search, don’t show up in unemployment statistics.Other people may claim to be unemployed in order to receive financial assistance, even though they aren’t looking for work.Some people work (homemakers) but aren’t paid in a formal labour market, and so aren’t counted as being part of the labour forceIt is difficult to distinguish between a person who is unemployed and a person who is not in the labour force.Most spells of unemployment are short.Most unemployment observed at any given time is long-term.
17 Is 0% Unemployment ever possible? Types of Unemployment- Frictional Unemployment- Structural Unemployment- Disguised Unemployment- Cyclical Unemployment
18 Frictional unemployment Definition: unemployment that results because for workers to search for the jobs that are best suit their tastes and skills.Companies and sectors grow, shrink, go bankrupt every day in every economyPeople migrate to other cities or regions for personal as well as economic reasonsPeople change jobs for many, even irrational reasonsAt any moment in time, there are many people temporarily unemployed in the economy
19 Structural unemployment Definition: is the unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one.The years age group members (adults) who can not find employment simply because there are not enough factories, offices, fields,Macroeconomic policies have no impact on structural unemployment in the short run: unemployment persists even during rapid growth
20 Disguised unemployment (gizli işsizlik) Many people, especially in agriculture and urban services seem to be workingBut they have very low productivity, creating very little value added and therefore earn low levels of incomeThis is due to the lack of jobs with high productivity in the economy, itself due to the capital constraint
21 Cyclical unemployment Cyclical unemployment happens when economic activity slows down as result of a recession or a an economic crisisAs demand for goods and services fall, people who were producing them loose their jobsMany people became unemployed in Turkey during 2001 and 2008 because of the economic crisis
22 Why do above market wages cause unemployment? If the wage is kept above the equilibrium (w*), then the quantity of labour supplied (LS) will exceed the quantity of labour demanded (LD) and some workers will be unable to find workThis is structural unemployment, and can be caused by:Minimum wagesUnionsEfficiency wagesLwSLDLLSLDUnemploymentWminW*L*
23 What determines the natural rate of unemployment? Minimum wagesMinimum wages cause some unemploymentAs minimum wage rises above equilibrium, the natural rate risesLabour UnionsAs unions seek to raise wages above equilibrium, they’ll produce a similar effect on the natural rate as minimum wagesEfficiency WagesWhen employers pay above market wages to reduce turnover and increase worker productivity, they increase the natural rateJob SearchIn general, it’s not possible to move from one job to another without some lost time – workers are therefore temporarily unemployed during the interimThe first 3 are all economic phenomena that keep the wage above equilibrium - therefore causing structural unemploymentThe fourth (job search) explains why there is always some frictional unemploymentGovernment programs can affect the time it takes unemployed workers to find new jobs, including the following:Government-run employment agenciesgive out information about job vacancies in order to match workers and jobs more quickly.Public training programsaim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.Unemployment insuranceis a government program that partially protects workers’ incomes when they become unemployed.Offers workers partial protection against job losses.Offers partial payment of former wages for a limited time to those who are laid off.Unemployment insurance increases the amount of search unemployment.It reduces the search efforts of the unemployed.It may improve the chances of workers being matched with the right jobs.
24 Conclusion• Unemployment is a major economic as well as political and social issue in all economiesLabour force consists of the employed and the unemployedThe unemployment rate is the percentage of people who would like to work but don’t have jobsThere are four different kinds of unemployment: structural, disguised, cyclical and frictionalMost unemployment in Turkey is structural Wage and salary earners constitute only 49 percent of the labour force in Turkey