Lecture Outline – UnemploymentA. Defining Unemployment1. Who are the unemployed?a. people not working for pay who are looking for work2. Who is in the labor force?a. We don’t include military or the institutionalizedb.total # of workers including the employed and unemployed3. How is the unemployment rate calculated?a. # of unemployed/Labor force x 100b.Labor force participation rate:% of the adult population that is in the labor force: unemployed + unemployed/ adult population x 1004. Why do we study unemployment?5. What are some of the weaknesses of using the unemployment rate as a measure ofhow well the labor market is working?a. Does not account for discouraged workersb.Does not account for underemploymentc. Does not measure the quality of the jobs or how well people are matches to their jobsd. What is a discouraged worker? How do discouraged workers affect the unem-ployment rate?1. Workers that have given up looking for work who would still like to have a jobe. What is underemployment? What is the underemployment rate? How does the underemployment rate compare to the unemployment rate?1. Employed people who are not employed enough, i.e. part time workers who want a full time job. underemployment is less than unemployment ratef. Is a decrease in the unemployment rate necessarily good? Is an increase in theunemployment rate necessarily bad? Explain.1. No, because it doesn’t pick up the quality of the jobs or the match of the jobs.1B. Frictional and Structural Unemployment1. What is frictional unemployment? a. Short-term unemployment that arises from the process of matching work-ers with jobs.b. What are the causes of frictional unemployment?1. A student getting ready to graduate who doesn’t have a job yet but is looking. c. Why is frictional unemployment described as short-term unemployment?1. Usually people just looking for jobs after they graduate from col-lege, etc... People may be looking for better jobs.d. Why is frictional unemployment not necessarily bad?e. What is “creative destruction?”2. What is structural unemployment?a. Persistent, long-term unemployment caused by long-lasting shocks or per-manent changes in the economyb. What are the factors that can increase structural unemployment?1. Large shocks that take a long time for the economy to restructure: Oil shocks, new information technologies, globalization, restruc-turing jobs away from manufacturing and towards services2. Labor regulations: Unemployment benefits, minimum wages, pow-erful unions, employment protection lawsc. Why is structural unemployment described as long-term unemployment?d. Aside from not having a job, what are some of the implications for a person who is structurally unemployed?3. What makes up a larger share of total unemployment in the U.S.? Frictional or structural unemployment?4. Why has structural unemployment been more serious in Europe than in the U.S.?a. Unemployment benefits: most generous in Europeb.Unemployment benefits last longer in Europec. Minimum wages are higher in Europed.Unions are stronger in Europe25. Explain why each of the following regulations will increase the unemployment rate.a. Unemployment benefits:b. Minimum wages: create more unemployment because the demand for labor is less than the supply of labor.c. Unions: they fight to get better benefits for their members. If those benefits exceed the market benefit, it will create unemployment1. Unions demand a higher wage. At the higher wage, the Q of labor supplied exceeds D of labord. Employment protection laws6. Name and describe some policies that can reduce structural unemployment.C. Cyclical Unemployment1. What is cyclical unemployment?a. Correlated with the business cycle. b.When GDP falls, firms lay off workers. Idle workers and capital consume less output. Firms produce less output and firms lay off more workers, etc.c. There has been some sort of change in the economy that has created a de-crease in aggregate outputd.Unemployment increases during a recession2. What is a “jobless recovery?”a. the number of people enering the labor force is more than the firms are hiring.3. What is the natural unemployment rate? a. Normal Rate of unemployment consisting of structural plus frictional un-employmentb. What types of unemployment are included in the natural unemployment rate?1. Structural plus frictionalc. What is the current estimate of the natural unemployment rate?4. What is the difference between the actual unemployment rate and the natural un-employment rate?3a. Actual rate of unemployment varies much more than the natural rate of unemployment.D. Labor Force Participation (LFPR)1. How is the LFPR calculated?a. Labor force participation rate:% of the adult population that is in the labor force: unemployed + unemployed/ adult population x 1002. How do each of the following affect the LFPR?a. Lifecycle effectsb. Demographicsc. Taxes and benefitsd. Cultural