Unemployment and Its Natural RateIDENTIFYING UNEMPLOYMENTPowerPoint PresentationHow Is Unemployment Measured?Employed, Unemployed, Not in the Labor Force, Labor ForceFigure 1 The Breakdown of the Population in 2001Slide 7Table 1 The Labor-Market Experiences of Various Demographic GroupsFigure 2 Unemployment Rate Since 1960Figure 3 Labor Force Participation Rates for Men and Women Since 1950Issues in Measuring UnemploymentSlide 12Why does unemployment occur?Frictional Unemployment and Job SearchJob SearchPublic Policy and Job SearchEffects of Unemployment InsuranceStructural UnemploymentSlide 19Figure 4 Unemployment from a Wage Above the Equilibrium LevelUNIONS AND COLLECTIVE BARGAININGSlide 22Are Unions Good or Bad for the Economy?THE THEORY OF EFFICIENCY WAGESSummarySlide 26Unemployment and Its Natural RateIDENTIFYING UNEMPLOYMENT•Long-run versus Short-run Unemployment:–Long-run: The natural rate of unemployment –Short-run: The cyclical rate of unemployment•Natural Rate of Unemployment–The amount of unemployment that the economy normally experiences and does not go away on its own even in the long run.•Cyclical Unemployment–Associated with with short-term ups and downs of the business cycle and refers to the year-to-year fluctuations in unemployment around its natural rate.•Describing Unemployment–Three Basic Questions:•How does government measure the economy’s rate of unemployment?•What problems arise in interpreting the unemployment data?•How long are the unemployed typically without work?How Is Unemployment Measured?•Unemployment is measured by the Bureau of Labor Statistics (BLS).–It surveys 60,000 randomly selected households every month.–The survey is called the Current Population Survey.•Based on the answers to the survey questions, the BLS places each adult (over 16) years old into one of three categories:–Employed–Unemployed–Not in the labor forceEmployed, Unemployed, Not in the Labor Force, Labor Force•Employed: A person is considered employed if he or she has spent most of the previous week working at a paid job.•Unemployed: 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.•Not in the Labor Force: A person who fits neither of these categories, such as a full-time student, homemaker, or retiree, is not in the labor force. •Labor Force–The labor force is the total number of workers and the BLS defines the it as the sum of the employed and the unemployed.Figure 1 The Breakdown of the Population in 2001Copyright©2003 Southwestern/Thomson LearningAdultPopulation(211.9 million)Labor Force(141.8 million)Employed(135.1 million)Not in labor force(70.1 million)Unemployed (6.7 million)How Is Unemployment Measured?•The unemployment rate is calculated as the percentage of the labor force that is unemployed.–Unemployment Rate= (Unemployed/Labor Force)*100•The labor-force participation rate is the percentage of the adult population that is in the labor force.–Labor-force Participation Rate=(Labor Force/Adult Population)*100Table 1 The Labor-Market Experiences of Various Demographic GroupsCopyright©2004 South-WesternFigure 2 Unemployment Rate Since 1960Copyright©2003 Southwestern/Thomson Learning10864201970 19751960 1965 1980 1985 1990 2005Percent ofLabor Force1995 2000Natural rate ofunemploymentUnemployment rateFigure 3 Labor Force Participation Rates for Men and Women Since 1950Copyright©2003 Southwestern/Thomson Learning1008060402001950 1955 1960 1965 1970 1975 1980 1985 1990 2000Labor-ForceParticipationRate (in percent)WomenMen1995Issues in Measuring Unemployment•It is difficult to distinguish between a person who is unemployed and a person who is not in the labor force.–Discouraged workers, people 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.•Length of Unemployment–Most spells of unemployment are short.–Most unemployment observed at any given time is long-term.–Most of the economy’s unemployment problem is attributable to relatively few workers who are jobless for long periods of time.Why does unemployment occur?•In an ideal labor market, wages would adjust to balance the supply and demand for labor, ensuring that all workers would be fully employed.•Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suit their tastes and skills.•Structural unemployment is the unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.Frictional Unemployment and Job Search•Job search –the process by which workers find appropriate jobs given their tastes and skills. –results from the fact that it takes time for qualified individuals to be matched with appropriate jobs.Job Search •This unemployment is different from the other types of unemployment.–It is not caused by a wage rate higher than equilibrium.–It is caused by the time spent searching for the “right” job.•Search unemployment is inevitable because the economy is always changing.•Changes in the composition of demand among industries or regions are called sectoral shifts. •It takes time for workers to search for and find jobs in new sectors.Public Policy and Job Search•Government programs can affect the time it takes unemployed workers to find new jobs.–Government-run employment agencies •Government-run employment agencies give out information about job vacancies in order to match workers and jobs more quickly.–Public training programs•Public training programs aim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.–Unemployment insurance•Unemployment insurance is 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.Effects of Unemployment Insurance•Unemployment insurance increases the amount of search unemployment.•It reduces the search efforts of the