Unemployment

In economics, unemployment refers to the condition

of unwanted job losses, or willing workers without jobs. Its as simple as that, only one thing you should pay attention that the willingness of the unemployed worker to be employed is the key to the idea.

Key concepts
Adult population Part of the civilian population of

individuals 16 years age and older, constituting the base for labor force participation rate calculation. Labor force Individuals aged 16 years and older who are either working or actively looking for work. Its part of the adult population in the economy, constituting base for unemployment rate calculation. Adults who are not actively looking for a job fall out of the group, such as discouraged workers, the retired and so forth. In other words, they are not labor force. Labor force participation rate The ratio of labor force over adult population.

Key concepts
Unemployment rate The number of unemployed

workers expressed as a percentage of the labor force. It could be anywhere between 1% ~ 30%, though 3% ~ 10% is the most common interval. Discouraged worker People who have given up looking for jobs because of frustration, therefore not calculated in labor force.

What are the types of unemployment?

There are essentially 4 types of unemployment,

namely
frictional unemployment, structural unemployment, seasonal unemployment and cyclical unemployment

Frictional unemployment
Is a type of voluntary unemployment that arises

because of the time needed to match job seekers with job openings. A good example is that when you make up your mind and set off looking for a better job and abandoning the current one, you are in the frictional unemployment labor force.

Structural unemployment
This happens when a large amount of unemployed

workers (labor force supply) dont qualify for a large amount of labor force demand. Its either because that the workers dont have the skills demanded by the employers or they live too far from the demanding area. Thus, unemployment caused by massive mismatch of skills or geographic location is noted as structural unemployment.

Seasonal unemployment
As the season of Christmas comes, demand for postal

services rise sharply so is postal workers because the workload is much bigger than that of any seasons else in the year. After that, demand for postal service drops to normal and so does demand for postal workers, bringing about unemployment. So, unemployment caused by seasonal changes in labor supply and demand during the year is called seasonal unemployment.

Cyclical unemployment
Because of business cycles, many firms reduce the

demand for inputs, including labor in recessional periods when production declines. unemployment is used to refer to the fluctuation in unemployment that is incurred by business cycles, more specifically, the unemployment caused by economic recessions

Business cycle
The business cycle describes the phases of growth and

decline in an economy. The goal of economic policy is to keep the economy in a healthy growth rate
How do we measure increases and decreases in

business activity?
Percent change in real GDP!

Business Cycle
A business cycle is not a regular, predictable, or repeating

phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degrees, unpredictable. A business cycle is identified as a sequence of four phases: Contraction: A slowdown in the pace of economic activity Trough: The lower turning point of a business cycle, where a contraction turns into an expansion Expansion: A speedup in the pace of economic activity Peak: The upper turning of a business cycle

Business cycle

Recession
What is a recession? Generally, 2 or more quarters of declining real GDP Implication: its not officially a called a recession until the economy has already been declining for 6 months!

Recession
What is a recession? Generally, 2 or more quarters of declining real GDP
Who decides when were in a recession? National Bureau of Economic Research traditionally declares recessions

How shall we measure unemployment?

Labor Force Everyone over the age of 16
Working for pay

Or Looking for paid employment

Conti.
With labor force (LF) comprising of all unemployed

(U) and employed (E) people, that is LF = U + E we have unemployment rate or UR, expressed as UR = U / LF * 100% In a case of 100,000 people in the labor force and 10,000 of whom are unemployed (lost jobs and actively seeking one), the unemployment rate would be calculated as UR = U / LF * 100% = 10,000 / 100,000 * 100% = 10%

How unemployment harms our daily lives and the economy?

Lost of income for individuals and outputs for

economy would come up first as the costs of unemployment. For individuals and households, unemployment forces them to curtail their consumption drastically and perhaps liquidate some of the assets often at a loss to meet financial obligations. All these have negative impact on the whole economy. Unemployment ruins family happiness also: quarrel, fight, divorce, children losing their education and good health that would have an enduring effect over their lives.

Facts about unemployment

Unemployment is highly and negatively correlated

with the productivity of the economy. Unemployment management is one of the toughest jobs of every government in the world. Along with price level, unemployment is probably the most observable economic indicator that the general public complain about their government. Unemployment rate can be anywhere between 1% ~ 30% (beyond is very much unlikely), and a healthy economy is believed to have a unemployment rate around 5%.