Lecture 3 unemployment

 Natural rate of unemployment: the normal rate of unemployment around which the actual unemployment rate fluctuates  Cyclical unemployment:  the deviation of unemployment from its nat

Macroeconomics

Lecture 4

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Chapter 28

Lecture Objectives

 Describe unemployment, why it is a problem and types of unemployment

 Learn how unemployment is measured

 Explain reasons for natural unemployment

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A situation wheresome people are willing

and able to work, but are

unable to find paid employment

Unemployment

Why Unemployment Is a Problem?

Unemployment results in

 Lost incomes and production

 Lost human capital

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Types of Unemployment

There’s always some unemployment, though the u-rate fluctuates from year to year

 Natural rate of unemployment:

the normal rate of unemployment around which the actual unemployment rate fluctuates

 Cyclical unemployment:

 the deviation of unemployment from its natural rate

 associated with business cycles

Natural Rate of Unemployment

Even when the economy is doing well, there is always some unemployment, including:

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 BLS regular survey of 60,000 households

 Based on the answers to the survey questions:

working-age population (adults 16 or more in US, 15

in Vietnam) are placed into one of three categories

 Employed

 Unemployed

 Not in the labor force

How is Unemployment Measured?

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How is Unemployment Measured?

 Employed: if the previous week

 In USA: paid employees, self-employed,

and unpaid workers in a family business

 In Vietnam: spent 1 hour working at a paid job

or family business

 Unemployed: if

 Not working

 looking for a work during past 4 weeks, or

waiting to be called back to laid-off, or start a new job

 Available for work

 Not in the labor force: every one else

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How is Unemployment Measured?

Example: the US labor force

How is Unemployment Measured?

Civilian noninstitutional population 249,723

Civilian labor force 156,050

Not in labor force 93,674

US labor force in Jan 2015 released on BLS website

‘000

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Labour Market Indicators

 The unemployment rate

U/E rate = Unemployed / Labour force

 The labor-force participation rate (LFPR)

LFPR = Labour force / Adult population

Labor Market Statistics by Education Level,

June 2008

Adults (25 yrs & older)

Labour Market Indicators

Vietnam labor and employment as of Q2 2014

Measurement Issues

 The u-rate is not a perfect indicator of joblessness

or the health of the labor market:

 It excludes discouraged workers

 Some people misreport their work status in

the BLS survey.

 It does not distinguish between full-time and

part-time work, or people working part time because full-time jobs not available.

Measurement Issues

 BLS Alternative measures of labor underutilization:

Measure

Not seasonall

y adjusted

U-1 Persons unemployed 15 weeks or longer, as a percent of the

U-2 Job losers and persons who completed temporary jobs, as a

U-3 Total unemployed, as a percent of the civilian labor force (official

U-4 Total unemployed plus discouraged workers, as a percent of the

civilian labor force plus discouraged workers 6.5 U-5 Total unemployed, plus discouraged workers, plus all other

persons marginally attached to the labor force , as a percent of the

civilian labor force plus all persons marginally attached to the labor

force

7.4

U-6 Total unemployed, plus all persons marginally attached to the

labor force, plus total employed part time for economic reasons, as a

percent of the civilian labor force plus all persons marginally attached

to the labor force

12.0

 GSO: Underemployment rate

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Measurement issues

In each of the following, what happens to the u-rate? Does the u-rate give an accurate impression of what’s happening in the labor market?

A Huong just graduated and start looking for a job

B Lan, a tailor who has been out of work since her

company closed last year, becomes discouraged and gives up looking for work

C Nam, the sole earner in his family of 5, just lost his

$80,000 job as a research scientist Immediately,

he takes a part-time job at restaurant until he can find another job in his field

Why is There Unemployment

 Cause of Frictional U/E: Job search

 Cause of Structural U/E: Above-Equilibrium Wage

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Why is There Unemployment

 Frictional unemployment:

unemployment that results from the time

that it takes to match workers with jobs or for workers to search for the jobs best

suited for them.

Job Search Unemployment

 Job search

 Job search unemployment

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True meanings of…

 Flexible hours: ?

 Negotiable salary:?

 Provide training opportunities:?

 Dynamic working environment:?

 Transparent promotion path:?

 …hmm can someone translate these into

Vietnamese please?

Job Search Unemployment

 Different from the other types of unemployment

 not caused by a wage rate higher than

equilibrium.

 caused by the time spent searching for the

“right” job.

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The Inevitability of Job Search Unemployment

 The economy is always changing

 Sectoral shifts: c hanges in the composition of demand among industries or regions

 It takes time for workers to search for and find

jobs in new sectors

Public Policy and Job Search

 Government programs to reduce searching time:

 Government-run employment agencies

 Public training programs

 Unemployment insurance

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Public Policy and Job Search

 Government-run employment agencies:

provide information about job vacancies in order to match workers and

jobs more quickly.

 Public training programs: ease the

transition of workers from declining to

growing industries and to help

disadvantaged groups escape poverty.

 Unemployment insurance: partially protect workers’ incomes when they become unemployed.

 Offer workers partial protection against job

losses.

 Offer partial payment of former wages for a

limited time to those who are laid off.

Public Policy and Job Search

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 Effects of Unemployment insurance:

 Increase the amount of search

unemployment.

 Reduce the search efforts of the unemployed.

 Improve the chances of workers being

matched with the right jobs.

Public Policy and Job Search

Why is There Unemployment

 Structural unemployment occurs when the

quantity of labor supplied exceeds the quantity

demanded

 Cause of Structural Unemployment:

Above-Equilibrium Wage due to:

 Minimum-wage laws

 Unions

 Efficiency wages

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Minimum-Wage Laws

When the minimum wage is set above the level that balances supply and

demand, it creates unemployment.

Unemployment from a Wage

Above the Equilibrium Level

Wage

Surplus of labor = Unemployment

Minimu

m wage

Labor supply

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Unions and Collective Bargaining

 A union: a worker association that bargains with

employers over wages and working conditions

 Collective bargaining: process by which unions and firms agree on the terms of employment

 A strike: withdrawal of labor from the firm,

organized if the union and the firm cannot reach an agreement

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Unions and Collective Bargaining

 Collective bargaining  above equilibrium wages

for their members

 Unionized workers: reap the benefits - in

Australia: earn up to 10 percent more than

nonunion workers

 Non-unionized workers: bear costs -

unemployed at higher wages.

Unions and Collective Bargaining

 Are Unions Good or Bad for the Economy?

 Critics’ ideas: causing inefficient and

inequitable allocation of labor

 Advocates’ ideas: a necessary antidote/

remedy to the market power of firms that hire workers

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Theory of Efficiency Wages

 Efficiency wages

 Theory of efficiency wages

Theory of Efficiency Wages

 Reasons for using efficiency wages

Why is There Unemployment

 Cause of Frictional U/E:

Lecture Review

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