Lecture 4: Unemployment

Measuring unemployment: Unemployment rate  Unemployment rate is defined most basically as the percentage of the total labor force that is unemployed but actively seeking employment an

Lecture 4

Unemployment

Dr.Do Xuan Luan

Faculty of economics and rural development

(FERD), Thai Nguyen University of Agriculture

and Forestry (TUAF)

All lectures of the course

1 Introduction to macroeconomics;

2 Gross Domestic Product (GDP);

3 Economic growth;

4 Unemployment

5 Inflation;

6 Aggregate Demand & Aggregate Supply (AS-AD model);

7 Fiscal Policy;

8 Monetary Policy;

9 Combined effects of monetary and fiscal policy;

10 Trading with the world;

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Definition & costs of unemployment

1

Measuring unemployment

2

Causes of unemployment

3

Policies for creating employment

4

Why unemployment matters?

It implies costs

Loss of

output

and

Income

Loss of human capital

Increase

in crime Loss of human

dignity

What is unemployment?

in the work force who want to work but do not

have a job

either given up looking for work or aren’t

working

are not actively searching for one because they

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Who is counted as unemployed?

Do not have a job

Actively look for a job in the past one month

Currently available to work

Temporarily laid off and are waiting to be called

back to that job

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Measuring unemployment: Unemployment rate

 Unemployment rate is defined most basically as the

percentage of the total labor force that is

unemployed but actively seeking employment and

willing to work.

 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒

 𝑈 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 ∗ 100%

 Example:

 Labor force: 41 million people

 Unemployed: 1 million people

 𝑈 = 1

41 ∗ 100% = 2.38%

 Interpretation: In every 100 people in the labor

force, 2.38 people are unemployed

Who is not included in labor force?

Excluded from labor force

Students Retired Unwilling

to work Disable Kids Prisoners

Exercise: Recall example of unemployment

According to data of IMF và ADB, on1/7/2002, total

population of Vietnam was 80 milliion people The total labor force employed was 41 The total labor force unemployed

was 1 million people There was a total 4 million people at

working age but not included in labor force (i.e: students,

housewife, retired )

Questions:

1) Calculate total labor force?

2) The rate of participating in the labor force?

3) Unemployment rate?

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Unemployment in Vietnam 2015

Population

90,728,900 (Vietnam 2014)

Labor force

54,206,654 (59.75%)

Employed

53,230,934

(98.20%)

Unemployed

975,720 (1.80%)

Not in labor force

36,522,246 (40.25%)

Source: The Ministry of Labor, Invalids and Social Affairs;

Unemployment rate of Vietnam

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Types of unemployment

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1

Frictional

unemployment

Time periods between

jobs when workers or

The process of

matching workers and

jobs

- Search for jobs

- Transit from one job

to another

2

Structural unemployment (skills gap)

A decline in a number of jobs available

- Lack of demand

- Technology change

- Retraining of workers

3

Cyclical unemployment:

A slowdown in the economic growth

- Peak (U-)

- Recession (U+)

- Trough (U++)

- Recovery (U-)

Full employment

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Number of people

looking for a job Number of job vacancies

Labor market & natural unemployment

At wage rate W1:

 AB: nonvoluntary unemployment

 BC: voluntary unemployment

 AC: unemployed

 W1C: total labor force

 W1A: labor forces are employed

At wage W0: full employment

(demand=supply)

 EF: natural employment

( Unemployment is frictional and structural and

there is no cyclical unemployment )

Labor Quantity

W1

W0

A B

E

F

D

L0

C Labor force

Labor force accept jobs

L1

Labor Price

Demand side to

increased AD(+)

1 Fiscal policy

Taxes (-)

Government

spending (+)

2 Monetary policy

Interest rates (-)

Policies for reducing unemployment

Supply side to reduce structural unemployment

1 Education and training

2 Improve labor market flexibility

3 Improved geographical mobility

Summary of key points

1) Unemployment represents the number of people in the

work force who want to work but do not have a job

2) Unemployment matters because it implies costs;

3) Three types of unemployment include frictional

unemployment, structural unemployment and cyclical

unemployment;

4) Policies to reduce unemployment should consider both

aggregate demand and aggregate supply side

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Assignment 4

1) Compare the unemployment rate of Vietnam and

Laos in the period 2010-2015;

2) Make comments on results

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