Unemployment

Unemployment - The percentage of people who don't have a job but are part of the labor force.
Labor Force - The number of people in a country that are classified as either employed or unemployed.

How to Calculate Unemployment Rate
(number of unemployed / (number of unemployed + number of employed)) x 100
Labor Force : number of unemployed + number of employed x 100

Those Who Are Not Considered to Be in the Labor Force

• Kids
• Retired people
• Military personnel
• Mentally insane
• Incarcerated
• Full time student
• Stay at home parents
• Discouraged workers (looking hard for work but can't find it)

What is full employment?

• Occurs when there is no cyclical unemployment present in the economy.
• Natural rate of unemployment (NRU) is achieved when labor market are imbalanced.  4-5%

How to get NRU?

• Structural unemployment+ frictional unemployment
• We don't count homeless people, based on last job or if you file information

Why is unemployment good?

• Less pressure to raise wages
• More workers available for future expansions

Why is unemployment bad?

• Not enough consumption(GDP)
• Too much poverty
• Too much government assistance is needed

Types of Unemployment

• Frictional - You are between jobs because you chose new opportunities, choices, lifestyle and education levels (this is voluntary)
• Seasonal - People are waiting for the right season to conduct trade

• Cyclical - Associated with downturns in the business cycle
• Structural - Associated with lack of skills (illiteracy, or perhaps a shift in location) or declining industry or change in technology)

Okun's Law - For every one percent of unemployment above NRU causes a 2% decline in real GDP.

• Ex. NRU = 3.5%, we give up 7% of real GDP