Unemployment

1. Unemployment

2. Full Employment? When we talked about producing on our PPC, we said the only way to be on it was to not waste or underutilize any factors of production. However, as we know, there are always some people not working. It’s better to think of full employment as the level of unemployment that exists when the economy is producing it’s potential output, aka the “natural rate of unemployment”

3. Unemployment defined… According to Tragakes, unemployment is “the number of unemployed people, defined as all people above a particular age (not children) who are not working and who are actively looking for a job.

4. Underemployment Tragakes again…. “the number of underemployed people, defined as all people above a certain age (not children) who have part-time jobs when they would prefer to have full-time jobs; or have jobs that do not make full use of their skills and education

5. More on Underemployment How does the reality of an engineer working as a dishwasher represent a waste of resources? When we have unemployment and/or underemployment, what does that tell us about our position in the PPC universe?

6. Unemployment Rate In order to talk about the unemployment rate, we have to first establish the idea of the labour force. What do you remember about the labour force?

7. Labour Force The labour force is defined as the number of employed people plus the number of unemployed people. Lots of people are not included in the labour force, such as…..

8. Not in the labour force

9. Measuring Unemployment We can refer to the unemployed as a number of adults who are not working but are actively seeking work……or more commonly….. As a percentage calculated as follows: Unemployment rate=# of unemployed/labour force X 100

10. Difficulties Measuring Unemployment

11. What’s the trouble? Unemployment statistics may be underestimated for several reasons including…. People who have given up looking for work (discouraged workers) are not part of the labour force Underemployed people count as employed. Even if you worked only one hour, you’re considered employed

12. More trouble Unemployment rates may be overestimated because if someone is working in the underground economy but “looking for work” at the same time, he counts as unemployed even though he is supporting himself.

13. Costs of Unemployment So what’s the big deal? People who aren’t working are lucky right?

14. Costs of Unemployment One cost of unemployment is the loss of real GDP. Less people working means less output which can have a severe negative multiplier effect on the economy. As we know, operating beneath our PPC is not a happy situation

15. Costs of Unemployment Try living a satisfying life without a regular paycheck. Even if you get unemployment benefits, they are unlikely to provide you with a decent living. And when they run out, you’re in big trouble.

16. Costs of Unemployment Unemployed people represent loss of potential revenue received by government. The government would rather have you work and pay taxes than for it to pay you unemployment benefits

17. Costs of Unemployment Social problems typically escalate with the unemployment rate. Fighting these social problems can be costly for government…

18. Costs of Unemployment Unemployment usually targets specific groups of people. Minorities, uneducated people, the young, people without job skills, and women have inordinately high rates of unemployment. This can lead to many disaffected people in society

19. Costs of Unemployment The longer you are unemployed, the more difficult it becomes to re-enter the workforce. Employers assume your skills have eroded, you are behind in terms of new technology, or there must be something wrong or someone else would have hired you.

20. Non-Economic Costs of Unemployment In addition to the economic costs of unemployment, there are non-economic costs as well, including: Psychological stress which can lead to health problems Social problems may escalate, such as criminal activity and violence

21. Types of Unemployment There are several types of unemployment. Let’s begin with those that occur even at “full employment” or the “natural rate of unemployment” Do you remember which types of unemployment fall in this category?

22. Structural Unemployment Structural Unemployment refers to unemployment that occurs when there is a mismatch between labour skills demanded and supplied. It may also result due to a mismatch of where workers are and where jobs are located Structural Unemployment may occur when….

23. Causes of Structural Unemployment Technology changes may lead to structural unemployment. When ATMs appeared, bank tellers became expendable, while computer people became more in demand. If those bank tellers don’t learn new skills, they may become structurally unemployed for a long time

24. Causes of Structural Unemployment Changes in consumer demand patterns may lead to structural unemployment. If consumers switch their purchasing from one industry to another, workers need to quickly learn new skills to work in the new industry. If they don’t, a trip to the unemployment office is needed…

25. Causes of Structural Unemployment If one area of a country, or a foreign country has a booming economy while another is failing, people in the failing region may become structurally unemployed unless they choose to relocate with their company. This happened in the U.S. “Rust Belt” as factories were unable to compete with foreign companies.

26. Dangers of Structural Unemployment Tends to be long-term Inflicts costs on individuals and society Often targets older workers, forcing them into early retirement

27. How to deal with Structural Unemployment Structural Unemployment will exist in a modern economy but can be lowered…..Do you remember the supply-side market and interventionist policies?

28. Market Oriented Measures The free market can fix anything! Let’s: Eliminate minimum wage Destroy labour unions Lower unemployment benefits Reduce job security for workers Lower peronal income taxes That’ll get people back to work! Maybe…

29. Interventionist Measures OK, we’ll let the government: Set up training programs Provide grants or low interest loans for education Provide on the job training and job info Provide grants to firms who train workers Offer wage subsidies to firms that hire the unemployed Help workers relocate Help depressed economic areas

30. Frictional Unemployment This occurs when people are between jobs due to being laid off, their company has gone out of business, they are waiting to begin a new job or they are looking for a better job It’s usually short-term and doesn’t signify a lack of marketable skills, so it’s not so serious

31. Incomplete Information Frictional Unemployment often occurs due to miscommunications between workers and firms. Because it can take time for workers and firms to find each other, frictional unemployment always exists to some extent.

32. How to deal with Frictional Unemployment More job centres, employment agencies and other ways for workers and firms to find each other. The market oriented policies discussed before apply here as well, under the assumption that people will spend less time out of the work force if there is money to be made….

33. Seasonal Unemployment Seasonal Unemployment occurs when the demand for labour changes on a seasonal basis. There are many examples of jobs that are required in certain times of the year, but not needed in others, such as…

34. Seasonal Unemployment

35. Seasonal Unemployment Like Frictional and Structural Unemployment, this is a fact of life and therefore part of the natural rate of unemployment. Can it be lowered? Perhaps with improved information during off season and the usual market-oriented ideas…..but it will never be eliminated completely..

36. Last Words The natural rate of unemployment includes the three we have just discussed. If we can lower the natural rate of unemployment, we can increase potential GDP, shift LRAS or the Keynesian AS to the right, and move closer to our PPC. All of this makes for a happy economist……