While the official unemployment rate provides a useful snapshot of the labor market, it measures joblessness

imperfectly.
Since it’s common that people moving into and out of the labor when more than one third of the unemployed are
recent entrants into the labor force
(include young workers looking for their first jobs or older workers who left previously but now return to look for
work)
Unemployment
However, not all unemployment ends with the job seeker finding a job. Almost half of all spells of unemployment
end when the unemployed person leaves the labor force.
Some of those who report being unemployed may not, in fact, be trying hard to find a job. They call themselves
unemployed because:
 They want to qualify for a government program that gives financial assistance to the unemployed
 They are working but paid "under the table" to avoid taxes on their earnings
On the other hand, some of those who report being out of the labor force may want to work. They might have
tried to find a job but have given up after unsuccessful search. These individuals are called discouraged workers,
they are not counted in unemployment statistics, even though they want to work but can't find jobs.
Table 2 provides a comprehensive overview of various measures of unemployment and underemployment in the
U.S. economy, it helps us understand the different dimensions of joblessness beyond the traditional
unemployment rate (U-3)
Individuals who have been unemployed for 15 Long-Term Unemployment
weeks or longer.
 Individuals who have lost their jobs and those Job Losers and Reentrants
who have finished temporary jobs
The percentage of the labor force that is Official Unemployment Rate
actively seeking work but unable to find
employment
Discouraged workers, who have given up Total Unemployment Plus
looking for work because they believe there are Discouraged Workers
no jobs available for them
Who are not currently working or actively Total Unemployment Plus
seeking work but are available for work and Marginally Attached Workers
have looked for a job in the recent past
This measure includes all unemployed Total Unemployment,
individuals, marginally attached workers, and Marginally Attached Workers,
those who are working part-time for economic and Part-Time Workers
reasons but would prefer full-time work

The standard unemployment rate (U-3) is often used, but it doesn't capture the full extent of labor market issues.
The other measures, U-1 through U-6, provide a more nuanced picture
The Bureau of Labor Statistics defines:
- Marginally attached workers: a person who recently graduated from college and is actively seeking a job. After
a few months of searching, they become discouraged due to a lack of opportunities. They may decide to
temporarily stop looking for work but remain open to job offers
- Discouraged workers: who has been unemployed for several months. They've applied for numerous jobs, but
haven't received any callbacks or job offers. With frustration, they may give up on their job search, believing that
there are no suitable job opportunities available
- Persons employed part-time for economic reasons: A college student who is working part-time prefer to work
full-time to earn more money for tuition and living expenses but are unable to find a full-time job that fits their
schedule or offers a competitive wage (underemployed)
How Long Are the Unemployed without Work?
- Most spells of unemployment are short, but most unemployment observed at any given time is long-term
(contradictory)
- Two example:
 Short Unemployment Spells: you meet 55 unemployed people in one year, 52 of them are unemployed for
a week and the last 3 people are unemployed for the full year. This means that 52/55, or 95 percent, of
unemployment spells end in one week
 Long-Term Unemployment:
 When you visit the unemployment office, 3 out of 4 people you meet (75%) will be unemployed for
the full year.
 These long-term unemployed individuals are a small group but they are always present because they
don’t find jobs quickly.
Most spells of unemployment are short: People usually find jobs within a week.
Most unemployment at any given time is long-term: The long-term unemployed are a small group but they are
more visible because they stay unemployed longer
Unemployment rate
- The unemployment rate never falls to zero; instead, it fluctuates around the natural rate of unemployment.
There are two factors show why:
 Frictional unemployment: Someone who quit the previous job to find a new position that aligns better
with his/her ability or passion. Students who have just graduate would spends a few months searching for
their first job that matches their skills.
=> Explain short spells of unemployment
 Structural unemployment: unemployment that results because the number of jobs available in some labor
markets is insufficient to provide a job for everyone who wants it. This occurs when the quantity of labor
supplied exceeds the quantity demanded. Here is some factors:
 Minimum Wage Laws: If the government sets a minimum wage that's too high, businesses may not
be able to hire as many workers as they would like. This can lead to unemployment, especially for
low-skilled workers.
 Unions: Unions can negotiate for higher wages for their members. While this can benefit workers, it
can also lead to higher labor costs for businesses, which may reduce the number of jobs available.
 Efficiency Wages: Some companies pay wages higher than the market rate to motivate their workers
and improve productivity. However, this can also lead to unemployment, as businesses may hire
fewer workers at higher wages.
=> Explains longer spells of unemployment
Job search
- Another reason economies always experience some unemployment is job search. Job search is the process by
which workers find appropriate jobs given their tastes and skills
- If all workers and all jobs were the same, so that all workers would quickly find new jobs that were well suited
for them, thus job search would not be a problem. But in fact, workers differ in their tastes and skills, jobs differ
in their attributes, and information about job candidates and job vacancies is disseminated slowly among many
firms and households in the economy
(Example: Job Search: Jane is looking for a new job that fits her skills and preferences.
 Different Skills and Preferences: Jane is an experienced graphic designer who loves remote work and
creative projects.
 Different Job Attributes: She finds that some jobs require on-site work, some are more technical, and others
offer different benefits.
 Slow Information Spread: Jane spends time on job boards, networking, and waiting for job listings to reach
her through various channels.)
Some frictional unemployment is inevitable: here is some factors
- The result of changes in the demand for labor among different firms:
 Consumer Preference: If consumers start preferring Ford cars over General Motors cars, Ford will need
more workers and General Motors will lay off workers.
 Job Search: The laid-off General Motors workers need to find new jobs, and Ford must hire new employees
for their open positions.
 Transition Period: (frictional unemployment explain short spells of unemployment) This process causes a
temporary period of unemployment as workers transition between jobs.
- Changes in composition of demand among industries or regions (sectoral shifts): When the world price of oil
drops, oil firms in Texas and North Dakota will respond to it by cutting back on production and employment. At
the same time, because oil price decrease which means the price of gasoline is cheaper, this will stimulate car
sales. Therefore, car manufacturers in Michigan and Ohio increase production and hiring more workers, and the
opposite happens when the world price of oil rises.
=> Because it takes time for workers to search for jobs in the new sectors, sectoral shifts temporarily cause
unemployment.
- Changing patterns of international trade are also a source of frictional unemployment: this happens when
workers need to move among industries
This is an example for workers moving among industries:
From 2004 to 2014 in the U.S., jobs in construction fell by 838.000 and 2.1 million in manufacturing, while jobs in
mining industry, computer systems design, food services, and healthcare increased. This shift is normal in a
dynamic economy and helps improve productivity and living standards in the long run. However, as workers in
shrinking industries lose their jobs and look for new ones, that’s why frictional unemployment occurs.
Public Policy and Job Search: Even if some frictional unemployment is inevitable, the precise amount is not. The
faster information spreads about job openings and worker availability, the more rapidly the economy can match
workers and firms.
=> If policy can reduce the time it takes unemployed workers to find new jobs, it can reduce the economy's
natural rate of unemployment. (With the rapid development of the internet today, information can be
transmitted more quickly. This helps unemployed people easily find job information)
- Not just the internet, government programs also try to facilitate job search in various ways:
 One way is through government-run employment agencies, which give out information about job
vacancies.
  Another way is through public training programs, which aim to ease workers' transition from declining to
growing industries and to help disadvantaged groups escape poverty.
Unemployment insurance:
- A government program that is designed to offer workers partial protection against job loss
- But the unemployed who quit their jobs, were fired for cause, or just entered the labor force are not eligible.
Benefits are paid only to the unemployed who were laid off because their previous employers no longer needed
their skills.
(Loan worked at a factory that closed down. She lost her job because the factory no longer needed her skills =>
She qualifies for unemployment insurance, receiving financial support while she searches for a new job.)
Now I will explain why unemployment insurance increases the amount of frictional unemployment, without
intending to do so in the next slide
A typical worker with unemployment insurance in the U.S. gets 50% of their previous wages for 26 weeks:
- While unemployment insurance reduces the hardship of unemployment, it also increases the amount of
unemployment.
- I will explain it base on one of the Ten Principles of Economics in Chapter 1: People respond to incentives.
Because unemployment benefits stop when a worker takes a new job, the unemployed devote less effort to job
search and are more likely to turn down unattractive job offers. In addition, because unemployment insurance
makes unemployment less difficult, workers are less likely to seek guarantees of job security when they negotiate
with employers over the terms of their employment.
(if someone laid off from their previous job, but because of the unemployment insurance they now can stay at
home without working and still be provided with 50% of their former wages, they would like to be unemployed) =>
This explain that although the program (unemployment insurance) is meant to help, it can unintentionally
increase frictional unemployment)
- However, there still some solution for this. In 1985, Illinois ran an experiment to study unemployment insurance.
They randomly chose some unemployed workers and offered them a $500 bonus if they found jobs within 11
weeks. This group found jobs faster, by an average of 7%, compared to those who didn't get the bonus
- Studies have tracked workers over time and found that unemployment benefits usually expire after 6 months to
a year. When these benefits end, people are much more likely to find new jobs. This shows that receiving
unemployment benefits reduces the effort people put into job searching
- Even though unemployment insurance reduces search effort and raises unemployment, we should not
necessarily conclude that the policy is bad. The program does achieve its primary goal of reducing the income
uncertainty that workers face. In addition, when workers turn down unattractive job offers, they have the
opportunity to look for jobs that better suit their tastes and skills. Some economists argue that unemployment
insurance improves the ability of the economy to match each worker with the most appropriate job.
- The study of unemployment insurance shows that the unemployment rate is an imperfect measure of a nation's
overall level of economic well-being. Most economists agree that eliminating unemployment insurance would
reduce frictional unemployment. Yet even so, such a change in policy could well diminish economic well-being.