Chapter 29
Unemployment
Key Termslabor forceunemployment ratelabor-force participation ratenatural rate of unemploymentcyclical unemploymentdiscouraged workersfrictional unemployment
structural unemploymentjob searchunemployment insuranceunioncollective bargainingstrikeefficiency wages
Unemployment
How is it measured?Who measures it?
Central Department of Statistics and Information
www.cdsi.gov.sa
Unemployment
EmployedUnemployed
Not in the Labor Force
Employedpaid employees
work in own businessunpaid workers in family business
full-time and part-timejobs but temporary absence
Unemployednot employed
availabletried to find a job in the last four
weekswaiting to be recalled from layoff
Not in Labor Forcenot employed or unemployed
full-time studenthomemaker
retiree
Not in Labor Forcenot employed or unemployed
full-time studenthomemaker
retiree
Labor Force
Employedand
Unemployed
Unemployment Rate
The percentage of the labor force that is
unemployed
Unemployment Rate
Employed 140
Unemployed 22
Labor Force 162
Unemployment Rate 13.6%
Labor-ForceParticipation Rate
The percentage of the adult population that is
in the labor force
Labor Force 162
Adult Population 325
Participation Rate 49.8%
Labor-ForceParticipation Rate
Employed 140
Unemployed 22
Labor Force 162
Unemployment Rate 13.6%
Adult Population 325
Participation Rate 49.8%
Rates
Natural Rate of Unemployment
The normal rate of unemployment around
which the unemployment rate fluctuates
CyclicalUnemployment
The deviation of unemployment from its
natural rate
Discouraged Workers
People who would like to work but have given
up looking for a job
ProblemsOverstate - Above actual
Cash workers
Understate - Below actualDiscouraged workers
Unemployment
FrictionalSeasonalStructural
Frictional
Time to find a new job
Seasonal
Demand changes with the season
Structural
Too many workers
Change in demand for skills
Structural
Creative Destruction
10% a Year
Unemployment Insurance
Government program to provide income when
workers become unemployed
Unemployment Insurance
Unintended ConsequenceMoral Hazard
May prolong unemployment
Why are wages too high?
Minimum wage lawsUnions
Efficiency Wages
Minimum Wage Laws
Government sets a minimum wage that can
legally be paid
0
1,000
2,000
3,000
4,000
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium Wage
30 workers30 jobs
no unemployment
Minimum Wage40 workers
20 jobs20 unemployed
workers
Minimum Wage20 workersget a raise10 workers
lose job10 new
unemployed workers
MinimumWage
Union
Worker association that negotiates with
employers over wages, benefits, and conditions
Union
One contract for all employees
Strike
Conflicts between workers
Efficiency Wages
Higher wages make more productive
employees
Efficiency Wages
Employee Wage Pizzas ProductivityWage per Pizza
Ali 100 5 20.0
Abdullah 200 12 16.7
Efficiency Wages
More HealthyLower TurnoverHigher Quality
More Effort