WEEK 6
CHAPTER 30 - UNEMPLOYMENT AND LABOUR FORCE PARTICIPATION
Unemployed workers = adults who do not have a job, but who are looking for work
(16+, not institutionalised, civilian, looking for work)
Unemployment rate = the percentage of the labour force without a job
Unemployed / (unemployed + employed (=labour force)) x 100
– The single best indicator of how well the labour market is working
– But incomplete - individuals without a job are not counted as unemployed if they are not
actively looking for work
– But it’s difficult to know exactly how many discouraged workers there are
– Also doesn’t measure the quality of the jobs people take or how well workers are
matched to their job
Underemployment rate = a Bureau of Labour Statistics measure that includes part-time
2 workers who would rather have a full-time position and people who would like to work but
have given up looking for a job
Labour force participation rate = the percentage of adults in the labour force
Types of unemployment:
. Frictional unemployment
= a short-term unemployment caused by ordinary difficulties of matching employee to
employer
1 – Scarcity of information is one of the causes - workers do not know all of the job
opportunities available for them and employers do not know all the available candidates
and their qualifications
– Usually doesn’t last long (without a recession, a few weeks or months)
– Large share of total unemployment due to progress not only creating new jobs but also
destroying old ones
. Structural unemployment
= a persistent long-term unemployment caused by long-lasting shocks or permanent features
of an economy that make it more difficult for some workers to finds jobs
– Cause: economy-wide shocks that occur relatively quickly
– Adjusting to these can create long-lasting unemployment as the economy
restructures
– Problems of unemployed workers:
– The longer a workers remains out of labour force, the more his or her skills will
diminish
– Hiring managers may regard unemployment as a sign of laziness or other problems
– Big problem in Europe
Unemployment benefits = include unemployment insurance, housing assistance etc
– Most obvious labour regulation that can increase unemployment rates
– Reduce incentives for workers to search for and take on new jobs
, Minimum wages -> higher minimum wage leads to higher unemployment, because labour
becomes more expensive so less quantity of labour demanded
Unions = an association of workers that bargains collectively with employers over wages,
benefits, and working conditions
In the US: due to employment protection laws, an employee can quit anytime and an
employer can fire at any time
= employment at-will doctrine
(Can be changed by contract)
Employment protection laws:
– Create valuable insurance for workers with full-time jobs
– Make labour markets less flexible and dynamic
– Increase the duration of unemployment
– Increase unemployment rates among young, minority or “riskier” workers
Active labour market polices (e.g. work tests, job search assistance, job retraining programs)
-> Europe has begin to change its regulations to reduce long-term unemployment
Factors affecting structural unemployment:
– Large, long-lasting shocks that require the economy to restructure
– e.g. oil shocks, shifts from manufacturing to services, globalisation, technology
shocks
– Labour regulations
– e.g. unemployment benefits, minimum wages, powerful unions, employment
protection laws
. Cyclical unemployment
= unemployment correlated with the business cycle
– Lower growth means more unemployment because:
– When GDP is falling, first often lay off workers
– Higher unemployment means less workers producing goods and services
CHAPTER 30 - UNEMPLOYMENT AND LABOUR FORCE PARTICIPATION
Unemployed workers = adults who do not have a job, but who are looking for work
(16+, not institutionalised, civilian, looking for work)
Unemployment rate = the percentage of the labour force without a job
Unemployed / (unemployed + employed (=labour force)) x 100
– The single best indicator of how well the labour market is working
– But incomplete - individuals without a job are not counted as unemployed if they are not
actively looking for work
– But it’s difficult to know exactly how many discouraged workers there are
– Also doesn’t measure the quality of the jobs people take or how well workers are
matched to their job
Underemployment rate = a Bureau of Labour Statistics measure that includes part-time
2 workers who would rather have a full-time position and people who would like to work but
have given up looking for a job
Labour force participation rate = the percentage of adults in the labour force
Types of unemployment:
. Frictional unemployment
= a short-term unemployment caused by ordinary difficulties of matching employee to
employer
1 – Scarcity of information is one of the causes - workers do not know all of the job
opportunities available for them and employers do not know all the available candidates
and their qualifications
– Usually doesn’t last long (without a recession, a few weeks or months)
– Large share of total unemployment due to progress not only creating new jobs but also
destroying old ones
. Structural unemployment
= a persistent long-term unemployment caused by long-lasting shocks or permanent features
of an economy that make it more difficult for some workers to finds jobs
– Cause: economy-wide shocks that occur relatively quickly
– Adjusting to these can create long-lasting unemployment as the economy
restructures
– Problems of unemployed workers:
– The longer a workers remains out of labour force, the more his or her skills will
diminish
– Hiring managers may regard unemployment as a sign of laziness or other problems
– Big problem in Europe
Unemployment benefits = include unemployment insurance, housing assistance etc
– Most obvious labour regulation that can increase unemployment rates
– Reduce incentives for workers to search for and take on new jobs
, Minimum wages -> higher minimum wage leads to higher unemployment, because labour
becomes more expensive so less quantity of labour demanded
Unions = an association of workers that bargains collectively with employers over wages,
benefits, and working conditions
In the US: due to employment protection laws, an employee can quit anytime and an
employer can fire at any time
= employment at-will doctrine
(Can be changed by contract)
Employment protection laws:
– Create valuable insurance for workers with full-time jobs
– Make labour markets less flexible and dynamic
– Increase the duration of unemployment
– Increase unemployment rates among young, minority or “riskier” workers
Active labour market polices (e.g. work tests, job search assistance, job retraining programs)
-> Europe has begin to change its regulations to reduce long-term unemployment
Factors affecting structural unemployment:
– Large, long-lasting shocks that require the economy to restructure
– e.g. oil shocks, shifts from manufacturing to services, globalisation, technology
shocks
– Labour regulations
– e.g. unemployment benefits, minimum wages, powerful unions, employment
protection laws
. Cyclical unemployment
= unemployment correlated with the business cycle
– Lower growth means more unemployment because:
– When GDP is falling, first often lay off workers
– Higher unemployment means less workers producing goods and services
