UnemploymentUnemployment

Section 7- How unemployment Section 7- How unemployment influences our economy. influences our economy.

The President’s Council of The President’s Council of Economic Advisors Economic Advisors measures unemployment measures unemployment

Persons are classified as unemployed if Persons are classified as unemployed if they were not employed during the they were not employed during the survey week, but were available for work survey week, but were available for work and had made a specific effort to find a and had made a specific effort to find a job at the same time within the preceding job at the same time within the preceding four weeks, or if they were waiting either four weeks, or if they were waiting either to report to a new job within 30 days or to report to a new job within 30 days or be recalled to a job from which they were be recalled to a job from which they were laid off.laid off.

Department of Labor Department of Labor

The Department of Labor’s data The Department of Labor’s data collection is reasonably reliable but is not collection is reasonably reliable but is not completely accurate because of two completely accurate because of two distinct groupsdistinct groups

Discouraged WorkersDiscouraged Workers Dishonest Non-WorkersDishonest Non-Workers

Discouraged WorkersDiscouraged Workers

Discouraged workers are individuals who Discouraged workers are individuals who would love to go back to work, but due to the would love to go back to work, but due to the length of time being unemployed, low self-length of time being unemployed, low self-esteem, many job applications rejections, or esteem, many job applications rejections, or just bad luck, they have given up on looking for just bad luck, they have given up on looking for a new job. These individuals are beyond the a new job. These individuals are beyond the four-week cutoff for counting them as four-week cutoff for counting them as unemployed, thus the real rate of unemployed, thus the real rate of unemployment is underestimated.unemployment is underestimated.

Dishonest Non-WorkersDishonest Non-Workers

Dishonest non-workers are individuals Dishonest non-workers are individuals who say they are looking for who say they are looking for employment, thus being eligible for employment, thus being eligible for employment compensation, although employment compensation, although they have no real intention of taking a they have no real intention of taking a new job. Therefore, because of this new job. Therefore, because of this group, the real rate of unemployment is group, the real rate of unemployment is overestimated. overestimated.

Class Discussion Class Discussion

Why & when (under what circumstances) Why & when (under what circumstances) would the sizes of these groups be larger would the sizes of these groups be larger or smalleror smaller

Unemployment: Basic Unemployment: Basic ClassificationsClassifications

Frictional UnemploymentFrictional Unemployment Structural UnemploymentStructural Unemployment Seasonal UnemploymentSeasonal Unemployment Cyclical UnemploymentCyclical Unemployment Induced UnemploymentInduced Unemployment

Frictional Frictional

When unemployment happens naturally. When unemployment happens naturally. That is, there are some people who quit That is, there are some people who quit their jobs because they do not like them, their jobs because they do not like them, and some people seek to re-enter the job and some people seek to re-enter the job market. Like mothers after leaving a job market. Like mothers after leaving a job to have children.to have children.

StructuralStructural

When the skills of the potential employee When the skills of the potential employee no longer match the needs of the no longer match the needs of the potential employers. Technological potential employers. Technological changes may have made an employee’s changes may have made an employee’s skills & talents obsolete. skills & talents obsolete.

Can you think of any situations?Can you think of any situations?

SeasonalSeasonal

Some products or businesses are in Some products or businesses are in demand during only part of the year. demand during only part of the year. When business is not being conducted, When business is not being conducted, the demand for employees drops the demand for employees drops considerably. The construction business considerably. The construction business in the northern states and agricultural in the northern states and agricultural harvesting in many states are good harvesting in many states are good examples. examples.

Cyclical Cyclical

There is a seemingly natural cycle of There is a seemingly natural cycle of good economic times and poor times. good economic times and poor times. During these poor times of recession or During these poor times of recession or depression, businesses decrease their depression, businesses decrease their outputs, which requires fewer employees, outputs, which requires fewer employees, thus causing an increase in thus causing an increase in unemployment. unemployment.

InducedInduced

Caused by government policy. A prime Caused by government policy. A prime example is the national minimum wage example is the national minimum wage law. The minimum law prevents law. The minimum law prevents businesses from hiring workers who businesses from hiring workers who would otherwise work for less pay than would otherwise work for less pay than the government law requires. the government law requires.

REVIEWREVIEW

Discouraged WorkersDiscouraged Workers Dishonest Non-WorkersDishonest Non-Workers Frictional Unemployment Frictional Unemployment Structural Unemployment Structural Unemployment Seasonal Unemployment Seasonal Unemployment Cyclical Unemployment Cyclical Unemployment Induced Unemployment Induced Unemployment