23115 Lecture Notes - Lecture 8: University Of Florida

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17 May 2018

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23115–EconomicsforBusiness

‐ 

 Unemploymentreferstoasituationwhereindividualswanttoworkbutareunabletofinda

job,andasaresultlabourresourcesinaneconomyarenotutilised.

MEASURINGUNEMPLOYMENT

 Tomeasureunemployment,ABSconductsaregularsurveyof0.45%ofAustralian

households(LabourForceSurvey).Basedontheanswers,theABSplaceseachadult(aged15

yearsorolder)intooneofthefollowing:

‐ Employed–ifapersonspentatleastonehourofthepreviousweekworkingatapaidjob

(includingself‐employment)orfamilybusiness.

‐ Unemployed–ifapersonisontemporarylayoff,islookingforajob,oriswaitingtostarta

newjob.

‐ Notinthelabourforce–ifapersonfitsneitherofthefirsttwocategories.

 Labourforceisthetotalnumberofworkers,includingboththeemployedandthe

unemployed.

 Unemploymentrateisthepercentageofthelabourforcethatisunemployed.

 Labour‐forceparticipationrateisthepercentageoftheadultpopulation(workingage

population)thatisinthelabourforce.

 Labour‐forceparticipationratesformenandwomensince1978.

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23115–EconomicsforBusiness

Thelabourforceisunderutilisedifthelabourforceisworkinglessthantheycouldorwould

liketo;theunderutilisationrateisthenumberofunemployedplustheunderemployedasa

percentageofthelabourforce;risingfrom9%in2008to10%in2010.

 Naturalrateofunemploymentreferstothenormalrateofunemploymentaroundwhich

theunemploymentratefluctuates.

 Cyclicalunemploymentreferstothedeviationofunemploymentfromitsnaturalrate.

 Inshort,thenaturalrateisthefullemploymentrateofunemploymentandthecyclicalrate

isunemploymentadditionaltothefullemploymentrate.

 Unemploymentratesince1978–unemploymentratewas5.8%inApril2014.

DOESTHEUNEMPLOYMENTRATEMEASUREWHATWEWANTITTO?

 Whereasitiseasytodistinguishbetweenapersonwithafull‐timejobandapersonwhois

notworkingatall,itismuchhardertodistinguishbetweenapersonwhoisunemployedand

apersonwhoisnotinthelabourforcebecauseitiscommonforpeoplemoveintoandout

ofthelabourforce.

 Becausepeoplemoveintoandoutofthelabourforcesooften,statisticsonunemployment

aredifficulttointerpret.

o Ontheonehand,someofthosewhoreportbeingunemployedmaynotbetryinghardto

findajob.Theyarecallingthemselvesunemployedbecausetheywanttoreceivefinancial

assistance–theABSclassifiesthemasbeingoutofthelabourforce.

o Ontheotherhand,someofthosewhoreportbeingoutofthelabourforcemaywantto

work.Theseindividualsmayhavetriedtofindajobbuthavegivenupafteranunsuccessful

search.Suchindividuals,calleddiscouragedworkers, donotshowupinunemployment

statistics,eventhoughtheyaremoreappropriatetobeclassifiedasunemployed.

Discouragedworkersrefertotheindividualswhowouldliketoworkbuthavegivenup

lookingforajob.

 OfficialABSstatisticsdonotincludepeoplewhohavenotbeenabletofindworkandleftthe

labourforce–knownas‘hiddenunemployed’.‘Discouragedjobseekers’includefamily

membersundertakinghomeduties,studentsthatratherworkandpeoplewithdisabilities.

HOWLONGARETHEUNEMPLOYEDWITHOUTWORK?

‐ Ifunemploymentisshort‐term,onemightconcludethatitisnotabigproblem.Workers

mayrequireafewweeksbetweenjobstofindopeningsthatbestsuittheirtastesandskills.

‐ Yetifunemploymentislong‐term,onemightconcludethatitisaseriousproblem.Workers

unemployedformanymonthsaremorelikelytosuffereconomicorpsychologicalhardship.

 Mostspellsofunemploymentareshort.

 Mostunemploymentobservedatanygiventimeislong‐term.

E.g.55unemployedpeople–52areunemployedforaweek,3areunemployedforfullyear.

‐ 52/55=95%unemploymentspellsendin1week.

‐ Totalamountofunemployment:52×3+1×52=156+52=208weeks.

‐ Hence,156/208=75%unemploymentislongterm.

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23115–EconomicsforBusiness

 Thissubtleconclusion(aboutthespellsofunemployment)impliesthateconomistsand

policymakersmustbecarefulwheninterpretingdataonunemploymentandwhendesigning

policiestohelptheunemployed.

 Mostpeoplewhobecomeunemployedwillsoonfindjobs.

 Yetmostoftheeconomy’sunemploymentproblemisattributabletotherelativelyfew

workerswhoarejoblessforlongperiodsoftime.

TYPESANDCAUSESOFUNEMPLOYMENT

o Inmostmarketsintheeconomy,pricesadjusttobringquantitysuppliedandquantity

demandedintobalance.Inanideallabourmarket,wageswouldadjusttobalancethe

quantityoflaboursuppliedandthequantityoflabourdemanded.

o Thisadjustmentofwageswouldensurethatallworkersarealwaysfullyemployed.

o Ofcourse,realitydoesnotresemblethisideal.Therearealwayssomeworkerswithoutjobs,

evenwhentheoveralleconomyisdoingwell.Inotherwords,theunemploymentratenever

fallstozero;instead,itfluctuatesaroundthenaturalrateofunemployment.

o Thereasonforthisisthatthereisalwayssomeleveloffrictional+structuralU/E.

Frictionalunemployment(UF)referstotheunemploymentthatresultsbecauseittakestime

forworkerstosearchforthejobsthatbestsuittheirtastesandskills.

‐ Basicallycausedbythesearchtimesfromtheprocessofmatchingworkersandjobs.

‐ Itisoftenthoughttoexplainrelativelyshortspellsofunemployment.

Structuralunemployment(US)istheunemploymentthatresultsbecausethenumberof

jobsavailableinsomelabourmarketsisinsufficienttoprovideajobforeveryonewhowants

one.

‐ Itisoftenthoughttoexplainlongerspellsofunemployment.

 Technologicalprogressandlargedemandswingscausechangesinstructureofeconomy.

 Contractingsector jobslost.

 ExpandingSector jobscreated.

 USexistsbecauseofmismatchesofskillsandlocation.

 Theunemployeddonothaverightskillsorrightlocationforthejobsavailable.

 Alsodescribedasamismatchbetweencompositionoflabourdemandandcompositionof

laboursupply.

DemandDeficientUnemployment(UDD)iscausedbydeficiencyofaggregatedemand

relativetothefullemploymentlevel.

‐ Economyisnotgeneratingenoughjobsduetoinsufficientdemandforgoodsandservices.

‐ Unemployedwillingtowork,butnojobsareavailable.

‐ Alsoknownasinvoluntaryunemployment.

Wage‐InducedUnemployment(UWI)iscausedbyworkerssuccessfullydemanding

excessivelyhighrealwages.

‐ Unionsexercisemarketpowertoincreaserealwagesabovemarket‐clearinglevel.Higher

realwagereducesdemandforlabourtobelowthatrequiredforfullemployment.

‐ Minimumwagelawssetbygovernmentaretoohigh.

‐ Firmsmaysetwagesabovemarketleveltomotivateloyalty,efficiencyandproductivity.

JOBSEARCH

 Onereasonwhyeconomiesalwaysexperiencesomeunemploymentisjobsearch.

 Jobsearchistheprocessbywhichworkersfindappropriatejobsgiventheirtastesandskills.

WHYSOMEFRICTIONALUNEMPLOYMENTISINEVITABLE

o Frictionalunemploymentisoftentheresultofchangesinthedemandforlabouramong

differentfirms.Similarly,becausedifferentregionsofthecountryproducedifferentgoods,

employmentcanriseinoneregionwhileitfallsinanother.

o Changesinthecompositionofdemandamongindustriesorregionsarecalledsectoral

shifts.Becauseittakestimeforworkerstosearchforjobsinthenewsectors,sectoralshifts

temporarilycausefrictionalunemployment.

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Document Summary

Types and causes of unemployment: in most markets in the economy, prices adjust to bring quantity supplied and quantity demanded into balance. Minimum wage laws: it is, however, important to note why minimum wage laws are not a predominant reason for unemployment most workers in the economy have wages well above the legal minimum, minimum wage laws are binding most often for the least skilled and least experienced members of the labour force, such as teenagers, it is only among these workers that minimum wage laws explain the existence of u/e, we should stop and notice that the structural unemployment that arises from an above equilibrium wage is, in an important sense, different from the frictional unemployment that arises from the process of job search, the need for job search is not due to the failure of wages to balance labour supply and labour demand.

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23115 Lecture Notes - Lecture 8: University Of Florida

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