EIBC - Unemployment Lesson

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Unemployment

Introduction

MeasuringEconomicPerformance_typesofunemployment.png The Facts about Unemployment...

  1. Types of unemployment determine the causes, consequences, and solutions. The types of unemployment include: seasonal, cyclical, structural, and frictional.
  2. Unemployment is calculated as a percentage by dividing the number of unemployed individuals by the number of all the individuals currently employed in the work force.
  3. When unemployment rates are high and steady, there are negative impacts on the long-run economic growth.
  4. Demand side and supply side solutions are used to reduce unemployment rates.

 

What is Unemployment?

Unemployment, also referred to as joblessness, occurs when people are without work and are actively seeking employment. During periods of recession, an economy usually experiences high unemployment rates. There are many proposed causes, consequences, and solutions for unemployment.

Let's first take a look at the overall meaning of being unemployed. Watch the video below.

 

 

Types of Unemployment

There are several different types of unemployment, of varying duration and severity (in terms of implications for the economy). This video goes through the types, and addresses why the Macroeconomic goal is "Low Unemployment," rather than "Zero Unemployment."

Watch the video to learn more.

 

 

Take a closer look at this topic in the activity below.

 

Unemployment and the Economy

The presentation below will cover the relationship between our economy and unemployment. 

 

Calculating Unemployment

Unemployment is calculated as a percentage by dividing the number of unemployed individuals by the number of all individuals currently employed in the workforce. The final measurement is called the rate of unemployment.

Number of unemployed individuals divided by the number of all individuals in the labor force equals the percent of unemployment

Measurement Shortcomings

The measurement of unemployment is not an absolute calculation and is prone to errors. For example, the unemployment rate does not take into account individuals who are not actively seeking employment, such as individuals attending college or even individuals who are in U.S. prisons. Individuals who are self-employed, those who were forced to take early retirement, those with disability pensions who would like to work, and those who work part-time and seek full-time employment are not factored in to the unemployment rate. Some individuals also choose not to enter the labor force and these statistics are also not considered. By not including all underemployed or unemployed individuals in the measurement of the unemployment rate, the calculation does not provide an accurate assessment of how unemployment truly impacts society. Errors and biases are also present due to data assembly and reporting inconsistencies.

Watch the video below to learn more about calculating the unemployment rate.

 

 

Effects of Unemployment

When unemployment rates are high and steady, there are negative impacts on the long-run economic growth. Unemployment wastes resources, generates re-distributive pressures and distortions, increases poverty, limits labor mobility, and promotes social unrest and conflict. The effects of unemployment can be broken down into three types:

  1. Individual: people who are unemployed cannot earn money to meet their financial obligations. Unemployment can lead to homelessness, illness, and mental stress. It can also cause underemployment where workers take on jobs that are below their skill level.
  2. Social: an economy that has high unemployment is not using all of its resources efficiently, specifically labor. When individuals accept employment below their skill level the economies efficiency is reduced further. Workers lose skills which causes a loss of human capital.
  3. Socio-political: high unemployment rates can cause civil unrest in a country.

 

Reducing Unemployment

There are numerous solutions that can help reduce the amount of unemployment:

  • Demand side solutions: many countries aid unemployed workers through social welfare programs. Individuals receive unemployment benefits including insurance, compensation, welfare, and subsidies to aid in retraining. An example of a demand side solution is government funded employment of the able-bodied poor.
  • Supply side solutions: the labor market is not 100% efficient. Supply side solutions remove the minimum wage and reduce the power of unions. The policies are designed to make the market more flexible in an attempt to increase long-run economic growth. Examples of supply side solutions include cutting taxes on businesses, reducing regulation, and increasing education.

 

Review

Review what you have learned by completing the activity below.

 

In Summary . . .

What's Your takeaway? Icon People who are not working but are looking and available for work at any one time are considered unemployed. The unemployment rate is the percentage of the labor force that is unemployed.

When the labor market is in equilibrium, employment is at the natural level and the unemployment rate equals the natural rate of unemployment.

Even if employment is at the natural level, the economy will experience frictional and structural unemployment. Cyclical unemployment is unemployment in excess of that associated with the natural level of employment.

Full employment is defined as an acceptable level of unemployment somewhere above 0%; there is no cyclical or deficient-demand unemployment.

 

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