ECON 204 1st Edition Lecture 4 Outline of Last LectureCalculating Real GDPA. What real GDP does not measure The Business CycleEmployment and UnemploymentOutline of Current LectureExpanding on UnemploymentA. Why does long run unemployment matterCurrent LectureExpanding on UnemploymentWorkers who spend time looking for employment are engaged in job search.Frictional unemployment: unemployment due to the time workers spend in job search.Structural unemployment: unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage.More on structural unemployment:Minimum wage: government-mandated floor on price of laborUnions: firm workers bargain collectively, often controversial Ex: coal mine unionsEfficiency wages: wages employers set above the equilibrium wage rate- incentive for better performance by workersSide effects of government policies: policies designed to help workers who lose their jobsMismatching between employees and employers: skill mismatch, language or cultural values mismatchNatural rate of unemployment: normal unemployment rate around which the actual unemployment rate fluctuates.Cyclical unemployment: a deviation in the actual rate of unemployment from the natural rate. (related to business cycle)Actual unemployment: natural and cyclical combinedNatural rate = structural + frictionalActual unemployment = cyclical + natural rateNote: a cyclical crisis, if lingers for too long can become a structural problemChange in natural rate of unemployment:-changes in labor force characteristics-changes in labor market institutions-changes in government policyWhy does long run unemployment matter?Long run unemployment means we are looking at a structural problem.Consequences:-Negative effects on health (physical and mental) of families, children and communities-Loss of social and human capital (lose connections and contacts)-Decline in reemployment wage-Decline in income and consumptionYear/Month Population Labor Force Employed2014 (Feb) 247,085 155,724 145,2662014 (Mar) 247,258 156,227 145,7422014 (Apr) 247,439 155,421 145,669LFPR (LF/P) in Feb = 155,724/247,085 = 0.6304155,724 (LF)-145,266 (employed)= 10,458 (unemployed)Unemployment rate = number of unemployed/LF10,458/155,724 = 0.0671 (unemployment rate – 6.7%)Finding % change month to month:% change = (X final – X initial)/((X final + X initial)/2) Note: ((X final + X initial)/2) = the