Transcript Unemployment

Hyun Bin Lee
(basically the same as Yellow book summary)
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Unemployment: those of working age who are
without work, but who are available for work
at the current wage rates.
Labor force: the total number of people who
do have jobs, plus those who are
unemployed.
Unemployment rate: is the number of
unemployed expressed as a percentage of the
labor force
Full employment: a situation in which
everyone in the labor force that is willing to
work at the market rate for his type of labor
has a job.
 Underemployment: A situation where a
country has excess labor that remains
employed. Also, where people are employed
but working less hours than they would.
Ex) part-time job workers
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Different ways of measurement
Ex) in Australia if you are employed for one hour a
week, you are considered employed.
 Only unemployed “who are registered” show up
in number  if there is no incentive to register,
the numbers will be lower
 Groups of people can be excluded from receiving
a benefit ex) mothers, school leavers, part-time
workers
 Some people claim they are unemployed even
though they are not ex) private tutors
 “Social stigma to be unemployed” in some
cultures
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Equilibrium unemployment: It is seen as the rate
of full employment where demand for labor
equals the supply of labor, but unemployment
still exists due to three different reasons.
Seasonal
Structural
Frictional
Disequilibrium unemployment: The labor market
is not in equilibrium, so unemployment exists.
Cyclical or demand deficient
Real wage
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Seasonal: unemployment associated with
industries or regions where the demand for
labor is lower at certain times of the year.
Structural: Unemployment as a result of
people who are between jobs. It often takes
time for workers to find jobs, even though
there are jobs.
Frictional: unemployment as a result of
people who are between jobs. It often takes
time for workers to find jobs, even though
there are jobs.
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Real-wage: disequilibrium unemployment
being driven up above the market clearing
rate
Demand deficient or cyclical: unemployment
caused by the business cycle where the
slowdown in economic activity with falling AD
is the cause of unemployment
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Labor markets do not work smoothly, labor
markets resist wage cuts. Wages tend to rise
easily but resist falling, because workers are
not passive commodities. Also unions often
prevent wage from falling.
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It falls in the unemployed individuals, their
families and friends, society and the national
economy
Loss of income difference between their previous
wage and any unemployment benefit
Lost of self-esteem
Lower living standard
Breakdown in family relationships
Possible increase of crime and vandalism
Economic output of individuals lost to society
(economy operates inside PPC)
Government revenue falls while expenditure
increases
Resource reallocation from sunset industries to
sunrise industries
Frictional
 Improve flow of information
 Reduce state benefits, so increase
opportunity cost of staying unemployed
 Structural
 Encourage workers to leave old industries and
move to where the work is
 Cutting wages locally to widen differential
with prosperous areas
 Overall cut in welfare payment
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 Government
interventions such as giving tax
holidays, grants, government funding, and
infrastructure developments
 Seasonal
 Similar action as with structural
unemployment
 Real-wage unemployment
 Remove restrictions to allow market to
operate freely
 Reduce power of unions (stickiness of wages)
 Abandon
minimum wages
 Minimize social insurance contributions for
firms
 Reduce state welfare benefits
 Demand-deficient unemployment
 Government should use fiscal and monetary
policy to raise AD and so demand for jobs