Unemployment.ppt

The Natural Rate of Unemployment

OverviewMeasuring unemploymentIs unemployment measured correctly?Why is there unemployment?Public Policies and job searches

Identifying UnemploymentA job loss means a lower living standard in the present, anxiety about the future, and reduced self-esteem.The problem of unemployment is usually divided into two categories: The Natural Rate of Unemployment The Cyclical Rate of Unemployment

Identifying UnemploymentNatural Rate of Unemployment represents persistent joblessness that does not go away on its own even in the long-run. Refers to the amount of unemployment that the economy normally experiences.Cyclical Unemployment refers to the year-to-year fluctuations in unemployment around its natural rate. Deals with short-term fluctuations associated with the ups and downs of the business cycle.

Measuring UnemploymentMonthly Unemployment Rate is calculated by:Statistics Bangladesh surveying 7,700 randomly selected households and categorizing each adult (i.e. >14 years old) as: Currently employed (have a paying job). Unemployed but actively seeking a job. Not in the labour force (i.e. neither of above).

Measuring UnemploymentA person is employed if he or she has spent most of the previous week working at a paid job.A person is unemployed if he or she is: on temporary layoff is looking for a job is waiting for the start of a new jobA person in neither category is not in the labour force.

Measuring UnemploymentThe Labour Force is the number of employed persons plus the number of unemployed. The Unemployment Rate is:U = [B/(A+B)] x 100U is the unemployment rateB is the number of unemployed personsA+B is the labour force

Measuring UnemploymentThe Labour-Force Participation Rate illustrates the fraction of the population that has chosen to participate in the labour market.The Labour-Force Participation Rate is:PR = [(A+B) / Population] x 100

Is Unemployment Measured Correctly?It is hard to distinguish between a person who is unemployed and a person who is not in the labour force.It is suggested that the unemployment rate is inaccurately low because it doesnt reflect:UnderemployedDiscouraged workers

Underemployed are those who are working part-time when they really want full-time work.Discouraged Workers are those who have given up looking for work and report that they are no longer in the labour force, when in fact, they would be willing to work if offered a suitable, stable job.Is Unemployment Measured Correctly?

Duration of UnemploymentMost of the economys unemployment problem is attributable to unemployed workers who are jobless for long periods of time.The rate of unemployment is the product of the number of jobless and their average duration of joblessness. The average duration of unemployment (>14 weeks) has been increasing over time from 35% in 1980s to 40% in 2000+.

Quick Quiz!How is the unemployment rate measured?How might the unemployment rate overstate the amount of joblessness? How might it understate it?

Why is there unemployment?In an ideal labour market, wages would adjust to balance the supply of labour and the demand of labour, ensuring all workers full employment. Four reasons why the ideal is missed:Minimum-wage lawsUnionsEfficiency wagesJob search

Why is there unemployment? Minimum-Wage LawsWhen a minimum-wage law forces the wage to remain above the level that balances supply and demand, it creates a surplus of labour.

Why is there unemployment? Minimum-Wage LawsPrice of labourQuantity oflabourDemandEquilibriumwithout Minimum WageSupply

Why is there unemployment? Minimum-Wage LawsPrice of labourQuantity oflabourSupplyDemandPMQSQDMinimum-WageLaw Established

Why is there unemployment? Minimum-Wage LawsPrice of labourQuantity oflabourDemandPMQSQDSurplus orUnemploymentSupply

Why is there unemployment? Unions and Collective BargainingA union is a worker association that bargains with employers over wages and working conditions. A union is a type of cartel.The process by which unions and firms agree on the terms of employment is called collective bargaining.

Why is there unemployment? Unions and Collective BargainingA strike will be organized if the union and the firm cannot reach an agreement. A strike makes some workers better off and other workers worse off: (1) Striking workers worse off in the short-run. (2) Rehired workers better off in the long-run.By acting as a cartel with ability to strike or otherwise impose high costs on employers, unions usually result in above equilibrium wages for their members.

Are unions good or bad for the economy?At wages set above equilibrium: a very large number of qualified workers are willing to accept the jobs there are very few jobs and seldom any job openings for aspiring workers workers tend to hold out accepting other jobs in hopes of one day landing the high-paying union job

Quick Quiz!How does a union in the auto industry affect wages and employment at General Motors and Ford? How does it affect wages and employment in other industries?

Why is there unemployment? The Theory of Efficiency WageFirms operate more efficiently if wages are above the equilibrium level. Even in the presence of an excess of labour, firms may be more profitable by keeping wages higher than equilibrium.Unemployment caused by this theory is similar to that caused by the minimum-wage laws and unions.

Why is there unemployment? The Theory of Efficiency WageHigher than equilibrium wages are set to promote the following goals of the firm: Worker Health: Better paid workers eat better and thus are more productive. Worker Turnover: A higher paid worker is less likely to look for another job. Worker Effort: Higher wages motivate workers to put forward their best effort. Worker Quality: Higher wages attract a better pool of workers to apply for jobs.

Why is there unemployment? Job Search UnemploymentSearch unemployment results from the fact that it takes time for qualified individuals to be matched with available jobs.This unemployment is different from the previous three types. It is not caused by a wage rate higher than equilibrium. It is caused by the time spent in searching or waiting for the right job.

Situations of Job Search UnemploymentSearch unemployment is inevitable because the economy is always changing. Situations that cause this type of unemployment include: New entrants into the job market Re-entrants into the labour force Relocations Job quitters

Public Policy and Job SearchGovernment programs try to facilitate the job search process in the following ways: Government-run employment agencies Government-run training programs Employment Insurance programsThese programs can either increase or decrease the time it takes the unemployed to find new jobs, depending on whether the programs are privately-or government-run.

Government-run employment agencies: Gives out information about job vacancies in order to match workers and jobs more quickly.Government-run training programs: Aim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.Public Policy and Job Search

Unemployment Insurance: Increases the amount of search unemployment without intending to. Offers workers partial protection against job loss. Partial payment of former wages for a limited time period.Public Policy and Job Search

Quick Quiz!How would an increase in the world price of oil affect the amount of search unemployment?Is this unemployment undesirable?What public policies might affect the amount of unemployment caused by this price change?

ConclusionSince unemployment can impose unusual hardships on individuals and families, it is an important concern of policy-makers. Public policies toward labour markets have had conflicting and sometimes contradictory effects.


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Unemployment.ppt