CHAPTER 28

UNEMPLOYED
GROUP 3
 TABLE OF CONTENTS

1. Identifying unemployed
2. Recipe
3. Does the unemployment rate measure what we want it to measure?
4. How long are the unemployed without work?
5. Why are there always some people unemployed?
6. Job search
7. Minimum-Wage Laws
8. Unions and Collective Bargaining
9. The theory of Efficiency wages
Identifying Unemployed
 Employed Unemployed
Paid employees, own business,
unpaid workers in a family
member’s business
Full-time and part-time workers
Temporarily absent: vacation,
illness, bad weather

Not in the labor

Not employed, not available
force
for work, had tried to find job Neither of employed and
during the previous 4 weeks unemployed
Waiting to be recall to a job Full-time students
from which they had been Homemakers
laid off Retirees
Recipe
Labor force = Number of employed + Number of unemployed

Number of unemployed
Unemployment rate = x 100
Labor force

Labor force
Labor-force parrticipation rate = x 100
Adult population
 Exercise

A country has the following labor market data:

Adult Population: 320.5 million
Employed People: 190.2 million
Unemployed People: 15.8 million
Not in the Labor Force: 114.5 million
Questions:
a. Calculate the Labor Force of this country.
b. Calculate the Unemployment Rate (round to two decimal places).
c. Calculate the Labor-Force Participation Rate (round to two decimal places).
d. If 5.3 million unemployed people stop looking for jobs and leave the labor force, what will be the
new Unemployment Rate?
Does the unemployment rate measure
what we want it to measure?

Labor market movement is common.

Over one-third of the unemployed are new entrants, including:
Young workers seeking their first jobs.
Older workers re-entering the labor force.
Unemployment data may be misleading:
Some report being unemployed to qualify for benefits or
work “under the table.”
Discouraged workers want jobs but stop searching, so
they are not counted in unemployment statistics.
How long are the
unemployed without
work?
Most unemployment spells are short, but
most unemployment observed at any
time is long-term
Many find jobs quickly, but a small group
remains jobless for long periods
This distinction is crucial for
policymakers when addressing the issue
Why are there always some people unemployed?

Frictional Unemployment Structural Unemployment

Occurs when wages are above
Occurs as workers take equilibrium, causing a shortage
time to find jobs that of jobs.
best match their skills. Caused by minimum-wage
laws, unions, and efficiency
These spells are usually wages.
short Leads to longer periods of
unemployment.
 Exercise

The population of Ectenia is 100 people: 40 work full-time, 20 work half-

time but would prefer to work full-time, 10 are looking for a job, 10 would
like to work but are so discouraged that they have given up looking, 10 are
not interested in working because they are full-time students, and 10 are
retired. What is the number of unemployed?

a. 10 b. 20
c. 30 d. 40
 Exercise

The population of Ectenia is 100 people: 40 work full-time, 20 work half-

time but would prefer to work full-time, 10 are looking for a job, 10 would
like to work but are so discouraged that they have given up looking, 10 are
not interested in working because they are full-time students, and 10 are
retired. What is the number of unemployed?

a. 10 b. 20
c. 30 d. 40
 Exercise

Using the numbers in the preceding question, what is the size of

Ectenia’s labor force?
a. 50 b. 60
c. 70 d. 80
 Exercise

Using the numbers in the preceding question, what is the size of

Ectenia’s labor force?
a. 50 b. 60
c. 70 d. 80
 Job search

Why some Frictional Public Policy and Job Unemployment

unemployment is Search Insurance
inevitable

Sectoral shifts cause Government programs Unemployment insurance

temporary unemployment as help reduce frictional supports laid-off workers
workers adjust. unemployment through financially.
International trade changes job agencies and training. Reduces income uncertainty
also lead to frictional Critics prefer the private but lowers job search effort,
unemployment. market for job matching increasing unemployment.
efficiency. Workers tend to find jobs as
benefits near expiration.
 Exercise

The main policy goal of unemployment insurance is to reduce the

a. Search effort of the unemployed.

b. Income uncertainty that workers face.
c. Role of unions in wage setting.
d. Amount of frictional unemployment.
 Exercise

The main policy goal of unemployment insurance is to reduce the

a. Search effort of the unemployed.

b. Income uncertainty that workers face.
c. Role of unions in wage setting.
d. Amount of frictional unemployment.
Minimum-Wage Laws

Minimum wage above equilibrium creates

structural unemployment (labor supply >
demand).
Mostly affects low-skilled workers, like
teenagers.
Impacts overall employment conditions,
despite applying to a small portion of
workers.
 Exercise

In a competitive labor market, an increase in the minimum wage results in

a(n) _________ in the quantity of labor supplied and a(n) _________ in the
quantity of labor demanded.

a. increase; increase b. increase; decrease

c. decrease; increase d. decrease; decrease
 Exercise

In a competitive labor market, an increase in the minimum wage results in

a(n) _________ in the quantity of labor supplied and a(n) _________ in the
quantity of labor demanded.

a. increase; increase b. increase; decrease

c. decrease; increase d. decrease; decrease
 Unions and Collective Bargaining

The economics of Unions Are Unions good or bad for

Unions negotiate wages and the economy?
conditions through collective Critics: Unions reduce labor
bargaining. market flexibility, causing
Higher wages can lead to inefficiency and unfairness.
unemployment as firms hire fewer Supporters: Unions balance
workers. employer power, improve
Benefits insiders (union workers) conditions, and boost productivity.
but harms outsiders (job seekers Union impact varies by industry
or lower-paid workers). and policies.
The theory of Efficiency wages

Efficiency-wage theory suggests that firms may voluntarily pay

wages above equilibrium to increase productivity.

Four reasons firms pay efficiency wages:

Worker Health
Worker Turnover
Worker Quality
Worker Effort
Thank You