HL 1 ECONOMICSIntroduction to Economics

Key Economic Indicator: UNEMPLOYMENT &

THE UNMPLOYMENT RATE

Unemployment Rates – Selected OECD* Advanced Economies

Country Unemployment Rates

Spain 20% (highest)

France 10%

United States 9.5%

Canada 8%

Britain 7.8%

Germany 7.6%

Japan 5.3%

Australia 5.3%

Switzerland 3.8%

South Korea 3.5% (lowest)

Source: Economist, August 12th 2010* OECD – Organization for Economic Cooperation and Development

Unemployment RatesDeveloping Countries

Country Unemployment Rates

South Africa 25.3%

Turkey 12%

Colombia 11.6%

India 10.7%

China 9.6%

Venezuela 8.2%

Brazil 7%

Vietnam 4.7%

Source: Economist, August 12th 2010

Unemployment Rates: Historical Trends: Selected Economies

Source: RBA August 2010

REGIONAL VARIATIONS WITHIN A COUNTRY: US EXAMPLEIt is important to realize that the unemployment rate can vary dramatically depending on the US state. California has unemployment rate above 12%. North Dakota has unemployment rate below 6%.

UNEMPLOYMENT IN THE UNITED STATES

1980-2009

What is unemployment and how is it measured?

According to the International Labour Organization (ILO) unemployment is defined as:

“People of working age who are without work, available for work and actively seeking employment”

The Unemployment Rate &the Labour Force

Unemployment Rate• The unemployment rate is the number of people

who are unemployed expressed as a percentage of the total labour force (not the whole population)

Labour Force• Otherwise known as the work force, it is

essentially the “economically active population”.• The legal working age varies considerably from

country to country.

The Legal Working Age - United States

• The legal working age in the United States is specified in the Fair Labor Standards Act (FLSA), which is enforced by the Department of Labor

• The FLSA child labor laws apply to workers under 18 years of age.

• The legal working age varies based on the type of occupation.

• For the majority of non-agricultural jobs, the minimum age is 14.

• However, there is no minimum for some jobs.

Jobs with No Minimum Age-USA

• Babysitting • Delivering newspapers • Household chores • Performing in movies, theatrical productions, television

shows, on the radio • Gathering evergreens for the purposes of making wreaths • Making evergreen wreaths • Any non-hazardous jobs in a business owned by one's

parents (as long as the business does not involve mining or manufacturing)

Guidelines for 14-15 year olds-USA

• Individuals who are 14 and 15 years old may legally work in many jobs, for limited hours. Many people in this age group work in retail and fast food positions. Youngsters in this age group may not be employed in any job classified as hazardous, and they may also not work in any type of mining or manufacturing position.

Jobs which 14-15 year olds, cannot perform – USA.

• Baking • Building maintenance or repair • Construction work • Cooking over open flames • Loading and unloading trucks, rail cars, etc. • Meat processing or grinding • Warehouse work • Operating power driven equipment • Transporting people or property • Many additional potentially hazardous

Who is not part of the Workforce?

• Although it varies from country to country, there is a specified age at which people are eligible to start work and retire.

• Anybody outside this age is not part of the workforce.

• Students attending school are not part of the workforce, as they are not looking for work.

• Parents who stay at home to look after their children are not considered part of the workforce.

Who is not part of the Workforce?

People not part of the workforce include:• Children, under 14 years (but exceptions apply!)• Students, studying full time with no part time work.• Stay-at-home parents• Retired People. Full Retirement Age – USA – 65 years,

but with plans to increase to 67 years.• Others who are choosing not to work (or are not able to

work). Even though they do not have jobs, such groups are not considered to be unemployed.

• If people are not actively seeking employment, they are not part of the workforce.

Calculate the Unemployment Rate for Country XYZ

• Total Population of a country is 100 million.• 20 million people are retired.• 20 million are below 14 years of age. • 2 million people are mentally and physically unable

to work• 100,000 people have given up looking for work and

no longer receive unemployment benefits. • 50 million are employed.

Calculate the unemployment rate.

Are these calculations correct??Yes or No!!

100 million- 42.1 million= 57.9= 7.9/57.9=.136X100=13.6%

Factors Causing Unemployment to Rise: Inflows

• People who have lost their jobs• People who have resigned• People who have left school, but have not yet

found work. • People who are trying to return to worker after

having left it (eg: stay at home parents returning to the workforce)

• People who have immigrated into the country but have not yet found work.

Factors Causing Unemployment to Fall: Outflows

• People who find jobs• People who retire• People who go (back) into education• People who choose to stay at home to look

after children• People who emigrate to other countries• People that give up the search for jobs.

TYPES OF UNEMPLOYMENTStructural Unemployment

There are three main causes of structural unemployment:Technology change• Eg: Industry closure (eg: The end of typewriter industry in the

late 1980s)Mismatch of skills in Geographical area • Eg: You want to be a police officer in Miami, but there are only

jobs in New York) Lack of Suitable Qualifications • The failure of the labor market to match those seeking work

with existing vacancies, usually attributed to a lack of suitable qualifications.

GROWTH OF STRUCTURAL UNEMPLOYMENT• In recent years, we have seen structural unemployment grow

as workers have been made redundant through the application of new technologies in an industry.

• Workers caught in these circumstances have to undergone retraining or face the prospect of long term unemployment.

TYPES OF UNEMPLOYMENTFrictional Unemployment

• This applies to unemployed people who are between jobs.

• At any point in time there will always be some workers who are unemployed because they are changing jobs for one reason or another.

• The impact of frictional unemployment on official unemployment statistics can be reduced by the latest labor market information and efficient employment agencies.

TYPES OF UNEMPLOYMENTSeasonal Unemployment

• Some forms of employment are only available during part of the year.

• Examples can include harvesting, shearing and fruit picking.

• Large numbers of school leavers flood the labor market each year giving rise to another form of seasonal unemployment.

TYPES OF UNEMPLOYMENTCyclical Unemployment

• Occurs because of fluctuations in the business cycle. • Economists have demonstrated that, historically, the

business sector tends to move in cycles between booms and recessions.

• Recession: High unemployment / Low labor demand.• Boom: Low unemployment / High labor demand. • The government can respond with a range of

macroeconomic policies. By increasing/decreasing interest rates, taxation and adjusting spending, the government can attempt to reduce the impact of cycles.

Strategies to Address Cyclical Unemployment

Expansionary Fiscal Policy• Fiscal Policy is any spending measure connected to the

National Budget / Government expenditure of a country. • Expansionary Fiscal Policy means spending more money,

than in previous periods. • You can also decrease taxes, which impacts on the

budget.• New government projects, involving the construction of

infrastructure like roads, bridges, and ports will help create jobs.

Strategies to Address Cyclical Unemployment

Expansionary Monetary Policy• Monetary Policy is any policy measure used by the Central

Bank of a country. • The most important monetary policy tool, is the setting of

official interest rates.• An expansionary monetary policy, would involve a

reduction in official interest rates, in order to stimulate demand in the economy.

• Lower interest rates, mean that both business and consumers can borrow money at a lower cost – therefore they are more likely to spend money.

TYPES OF UNEMPLOYMENTLong Term Unemployment

• Sometimes referred to as `hard core` unemployment.

• It refers to those individuals who are more or less permanently unemployed.

• Some workers retrenched in the latter years of their working life, have shown a reluctance to undertake retraining, choosing instead to remain unemployed, with the faint hope of securing a job in their previous occupation.

ACTIVITIY – TYPES OF UNEMPLOYMENT

Classify the following as a type of unemployment:

(1) John loses his job when the fruit picking season ends. (2) Sarah is made redundant when her biscuit factory

closes.(3) Joanne in her late 40s loses her job as a secretary

and refused to undergo retraining. (4) Liam and 100 other workers are laid off, when the

country enters a prolonged recession.(5) Mark has resigned from his current job to take up a

new position in 3 months time.(6) Linda is a qualified electrician in Brisbane, but there

are only vacancies for plumbers. (7) Matt has just graduated from high school and is

currently searching for work.