Unemployment in Today’s Economy

Measuring Unemployment The unemployment rate = the percentage of

the labor force that is jobless and actively looking for work• Based on a country’s labor force, not the entire population

Children younger than 16, the retired, and those incapable of working are not considered unemployed

• Rises when businesses across the country decide to stop hiring or cut back Does not count those who have stopped looking for work OR the

underemployed = those who work part-time when they want full-time or who work at a job below their skill level

• Workers over the age of 16 who are not working but are able to work and who have looked for work sometime during the previous four weeks are considered unemployed

Full employment = a level of unemployment in which none of the unemployment is caused by decreased economic activity

Some unemployment is inevitable• People become unemployed when they relocate;

leave one job to find another that suits better Unemployment rate of 4-6% indicates full

employment in the US• May be different in other countries and occur at

higher or lower rates of unemployment

Types of Unemployment 1) Frictional unemployment = temporary

unemployment experienced by people changing jobs

2) Seasonal employment = unemployment linked to seasonal work

3) Structural unemployment = when jobs exist but workers looking for work do not have the skills for those jobs

4) Cyclical unemployment = caused by a part of the business cycle with decreased economic activity

Frictional Unemployment Workers moving from one job to another

• Examples: parent who spent time at home raising children and decides to move back into the work force; recent college grad looking for first full-time job

Workers’ freedom to find the best work suited for them at the highest possible wage

Considered normal and not a threat to economic stability

Seasonal Unemployment Demand changes from season to

season• Demand for construction workers falls in the

winter• Tourism peaks at certain times of the year

depending on different regions which have different tourist seasons

• Migrant farm workers move from one area to another following the growing schedules of crops and winter months are slow

Structural Unemployment When the available jobs do not match up with the

skills and experience of available workers Occurs when businesses become more efficient,

require fewer workers New technology can replace human workers or

require workers to retrain New industries requiring specialized education

leave less well-educated workers out of work Change in consumer demand (from compact

discs to computer music files) can shift the types of workers needed• Offshore outsourcing, when jobs are staffed overseas

Cyclical Unemployment Occurs when the economy hits a low

point and employers decide to lay off workers

Workers who lose their jobs during a recession can have trouble finding new jobs (economy scales back and demand for labor declines)• When the economy picks up again, many

workers are able to find jobs

Impact of Unemployment 1) It is inefficient. It wastes human resources, one

of the key factors of economic growth 2) It does not follow equal opportunity rules

• Those with the least experience lose their jobs first (minorities and the young)

• With fewer jobs available, people on the lower rungs of the employment ladder have less opportunity to advance

3) It causes workers to lose faith in their ability to get a job that suits their skills• Potentially productive workers may give up their search for

work• If they are underemployed, they may not be motivated to

do their best work

Unemployment Benefits Purpose is to provide workers with monetary

payments for a specific period of time or until the worker finds a new job

Provided by state unemployment insurance programs

Eligibility for unemployment, benefit amounts, and the length of time benefits are determined by each individual state

Must meet eligibility requirements for wages earned or time worked during a 1 year period of time• Workers must be determined to be unemployed through no

fault of their own

Disqualification from Unemployment Benefits

The following circumstances may disqualify you from collecting unemployment benefits, depending on state law: • Quit without good cause • Fired for misconduct • Resigned because of illness (check on disability benefits) • Left to get married • Self-employed • Involved in a labor dispute • Attending school

Unemployment Benefits Regular benefits are paid for a maximum of 26 weeks in most

states. Additional weeks of benefits are available during times of high

unemployment. In many states, the compensation will be half your earnings, up

to a maximum amount. Benefits are subject to Federal income taxes and must be

reported on your Federal income tax return.

Role of Government & Unemployment

Is it the government’s responsibility to help people out when they are unemployed?

At what point should the government help the unemployed?

Out of the four types of unemployment (frictional, seasonal, structural, and cyclical), which ones should the government help out with unemployment benefits?

• 1) Frictional unemployment = temporary unemployment experienced by people changing jobs

• 2) Seasonal employment = unemployment linked to seasonal work• 3) Structural unemployment = when jobs exist but workers looking for

work do not have the skills for those jobs• 4) Cyclical unemployment = caused by a part of the business cycle

with decreased economic activity