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Chapter 29 !
Unemployment
Key Termslabor force unemployment rate labor-force participation rate natural rate of unemployment cyclical unemployment discouraged workers frictional unemployment
structural unemployment job search unemployment insurance union collective bargaining strike efficiency wages
Unemployment
How is it measured? Who measures it?
Central Department of Statistics and Information
!
www.cdsi.gov.sa
Total Population Not Adult Population Adult Population 15+ Not in Labor Force Labor Force Employed Unemployed
Population30
Saudis20
Adult Saudis 15+
14
Labor Force5.3
Employed4.7
Labor Force Participation Rate
Labor Force÷ Adult Saudis 5.3 ÷ 14 = 37.9%
Unemployment Rate
Unemployed ÷ Labor Force 0.6 ÷ 5.3 = 11.7%
Unemployed 0.60.6
Employedpaid employees
work in own business unpaid workers in family business
full-time and part-time jobs but temporary absence
Unemployednot employed
available tried to find a job in the last four
weeks waiting to be recalled from layoff
Discouraged Workers
People who would like to work but have given
up looking for a job
Not in Labor Forcenot employed or unemployed
discouraged workers full-time student
homemaker retiree
Unemployment Rate
The percentage of the labor force that is
unemployed
Adult Population
Population age 15 and older
Labor-Force Participation Rate
The percentage of the adult population (15+)
that is in the labor force
Employed 4,717,127
Unemployed 622,533
Labor Force = Employed + Unemployed
5,339,660
Unemployment Rate = Unemployed ÷ Labor Force
11.7%
Not in Labor Force 8,660,340
Adult Population Age 15+ = Labor Force + Not in Labor Force
14,000,000
Participation Rate = Labor Force ÷ Adult Population
38%
Source: General Statistics Department and Information
Saudi Labor Force
Saudi Adult Population 15+ 14 million
Not in Labor Force
Unemployed
EmployedLabor Force Unemployed + Employed
38%
62%
Employment Analysis Male Female Total
Employed 3,989,632 727,495 4,717,127
Unemployed 261,392 361,141 622,533
Labor Force 4,251,024 1,088,636 5,339,660
Unemployment Rate 6.1% 33.2% 11.7%
Adult Population 7,000,000 7,000,000 14,000,000
Participation Rate 61% 16% 38%
Employment Analysis Saudi Non-Saudi Total
Employed 4,717,127 6,011,996 10,729,123
Unemployed 622,533 10,114 632,647
Labor Force 5,339,660 6,022,110 11,361,770
Unemployment Rate
11.7% 0.2% 5.6%
ProblemsOverstate - Above actual
Cash workers !
Understate - Below actual Discouraged workers
Country Comparison
Saudi U.S China
Unemployment Rate 11.7% 7.9% 4.1%
Participation Rate 38.0% 63.3% 74.2%
Natural Rate of Unemployment
The normal rate of unemployment around
which the unemployment rate fluctuates
Cyclical Unemployment
The deviation of unemployment from its
natural rate
Unemployment
Frictional Seasonal Structural
!
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 Consequence Moral Hazard
May prolong unemployment
Why are wages too high?
Minimum wage laws Unions
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 workers 30 jobs
no unemployment
Minimum Wage 40 workers
20 jobs 20 unemployed
workers
Minimum Wage 20 workers get a raise 10 workers
lose job 10 new
unemployed workers
Minimum Wage
Efficiency Wages
Higher wages make more productive
employees
Efficiency Wages
Employee Wage Pizzas Productivity Wage per Pizza
Ali 100 5 20.0
Abdullah 200 12 16.7
Efficiency Wages
More Healthy Lower Turnover Higher Quality
More Effort