A basic study of the economic terminology - Unemployment.

1. Report on Unemployment
2017
ECONOMICS ASSIGNMENT 2
DHANYA PRAVIN PODUVAL
SECTION B | SPAD170122

2. Table of Contents
 TERMINOLOGY
o MACROECONOMICS
o LABOUR FORCE
o PARTICIPATION RATE
o UNEMPLOYMENT RATE
o NOT IN LABOUR FORCE
 KEY POINTS
 THEORY & CONCEPTS
o INTRODUCTION
o DEFINITION
o MEASURING UNEMPLOYMENT
o OTHER FACTORS MEASURING UNEMPLOYMENT
o CAUSES OF UNEMPLOYMENT
o CONSEQUENCES OF UNEMPLOYMENT
 TYPES OF UNEMPLOYMENT
o DEMAND DEFICIENT UNEMPLOYMENT
o STRCUTURAL UNEMPLOYMENT
o REAL WAGE UNEMPLOYMENT
o FRICTIONAL UNEMPLOYMENT
o VOLUNTARY UNEMPLOYMENT
 OTHER CONCEPTS OF UNEMPLOYMENT
o SEASONAL UNEMPLOYMENT
o DISGUISED UNEMPLOYMENT
o NATURAL RATE UNEMPLOYMENT
o UNDER UNEMPLOYMENT
 APPLICATIONS OF UNEMPLOYMENT STATISTICS
 REFERENCES

3. 1. Understanding the Terminologies
1.1 Macroeconomics
Macroeconomics is the branch of economics that studies the behaviour and performance of an economy as
a whole. It focuses on the
aggregate changes in the
economy such as unemployment,
growth rate, gross domestic
product and inflation
1.2 Labour Force
People with a job or registered as
looking for work. It is the total
number of workers, including both
the employedandtheunemployed.
1.3 Participation Rate
The fraction of the population of
working age who are in the labour
force. It is the percentage of the
adult population that is in the labour force.
1.4 Unemployment Rate
The fraction of the labour force without a job but registered as looking for work. It is the percentage of the
labour force that is unemployed.
1.5 Not in Labour Force
These following three groups:
1.5.1 People who would like work, but haven't looked for it in the last month. They include
the "marginally attached," who did look in the past year. They had school, ill health,
or transportation problems that kept them from looking in the past month. Others are
"discouraged workers." They don't believe there are any jobs. These people are included in the
Real Unemployment Rate.
1.5.2 The other groups aren't looking for work. They include students, homemakers and retired people.
Labour force = Number of employed + Number of
unemployed
Labour - force participation rate = (Labour force
/Adult population) x 100
Unemployment rate = (Number of unemployed / Labour
force) x 100

4. 1.5.3 Anyone under 16 is not included in the labour force, even if they are working.
2. Key Points
2.1 The unemployment rate is the percentage of those who would like to work but do not have jobs.
The Bureau of Labour Statistics calculates this statistic monthly based on a survey of thousands of
households.
2.2 The unemploymentrate is an imperfectmeasureof joblessness. Somepeoplewhocall themselves
unemployed may actually not want to work, and some people who would like to work have left
the labour force after an unsuccessful search.
2.3 In the U.S. economy, most people who become unemployed find work within a short period of
time. Nonetheless, most unemployment observed at any given time is attributable to the few
people who are unemployed for long periods of time.
2.4 One reason for unemploymentis the timeit takes for workers to search forjobs that best suit their
tastes and skills. Unemployment insurance is a government policy that, while protecting workers’
incomes, increases the amount of frictional unemployment.
2.5 A second reason why our economy always has some unemployment is minimum-wage laws. By
raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum-
wage laws raise the quantity of labour supplied and reduce the quantity demanded. The resulting
surplus of labour represents unemployment.
2.6 A third reason for unemployment is the market power of unions. When unions push the wages in
unionized industries above the equilibrium level, they create a surplus of labour.
2.7 A fourth reason for unemployment is suggested by the theory of efficiency wages. According to
this theory, firms find it profitable to pay wages above the equilibrium level. High wages can
improve worker health, lower worker turnover, increase worker effort, and raise worker quality.

5. 3.1 Theory & Concepts
3.1. Introduction
 Unemployment means that scarce human resources are not being used to produce goods and
services to meet people’s needs and wants
 Persistently high levels of joblessness have damaging scarring consequences for an economy causing
economic and social costs
 Problems caused by unemployment occur across a country but are often bad and deep-rooted in
local and regional communities and within particular groups of society – for example in the UK, more
than one in six young people are out of work. The figure is much higher in Greece and Spain. Many
younger people may choose to leave their country in search of work.
3.2 Definition of Unemployment
Unemployment is defined by the Bureau of labour Statistics as people who do not have a job, have actively
lookedforworkin the past fourweeks, andare currently availableforwork.Also,peoplewhoweretemporarily
laid off and were waiting to be called back to that job are included in the unemployment statistics.
Those who have not looked for work within the past four weeks are no longer counted among the
unemployed.
3.3 Measuring Unemployment
The ClaimantCount measure includespeoplewhoare eligibletoclaimtheJob Seeker's Allowance(JSA).The
data is seasonally adjusted to take into account predictableseasonal changes in the demand for labour.
The Labour Force Survey counts those who are without any kind of job including part time work but who
have looked for work in the past month and are able to start work immediately. The figure includes those
people who have found a job and are waiting to start in the next two weeks.
 On average, the Labour Force Survey measure has exceeded the Claimant Count by about 500,000 in
recent years – equivalent to 2.5% of the labour force.
 Because the LFS measure is a survey - albeit a large one and one that provides a rich source of data
on the employment status of thousands of households - there will always be a sampling error in the
data.
 The Labour Force Survey uses the internationally agreed definition of unemployment and therefore
allows more accurate cross-country comparisons of unemployment levels among developed
countries. These are summarised in the next table.
3.4 Other factors in Measuring Unemployment
3.4.1 Discouraged workers

6.  No measure of unemployment is completely accurate since there are some people out of
work but looking for a job who are not picked up by the official statistics
 Official unemployment data misses out the “hidden unemployed” - an example
are discouraged workers who have been out of work for a long time and who have
stopped applying for jobs
3.4.2.1 The Economically Inactive – these are people who are not actively looking for work –
some of the reasons include:
 The need to look after elderly or infirmed relatives
 Parents who are full-time carers for their children
 People who have taken early retirement
3.4.2.2 Under-employment: In many countries data may ignore the extent of under-employment,
for example peoplewho want full-time work but have to settle for a part-time job. In many
lower-income countries the quality of the labour market data may be poor causing
published figures to be inaccurate.
3.5 Causes of Unemployment
3.5.1 Unemployment is caused when the economy slows down, and businesses are forced to cut
costs by reducing payroll expenses.
3.5.2 Competition in particular industries or companies can also cause unemployment.
3.5.3 Advanced technology, such as computers or robots, cause unemployment by replacing
worker tasks with machines. Jobs outsourcing is a significant cause of unemployment. It's especially
common in technology, call centres, and human resources.
3.6 Consequences of Unemployment
The consequences of unemployment for the individual is financially and often emotionally destructive. The
consequences for the economy can also be harmful if unemployment rises above 5 or 6 percent.
When that many people are unemployed, the economy loses one of its key drivers of growth, consumer
spending. Quite simply, workers have less money to spend until they find another job. If high national
unemployment continues, it can deepen a recession or even cause a depression. That's because less
consumer spending from unemployed workers reduces business revenue, which forces companies to cut
more payroll to reduce their costs. It can become a downward spiral very quickly.
If the labour has been out of work even longer, their job skills may no longer match the requirements of the
new jobs being offered. Many of them are 55 or older. They may not be able to get a good job again,
despite laws prohibiting age discrimination. They may get part-time or low-paying entry jobs to make ends
meet. Then become unemployed again until they can take down early Social Security benefits at age of 62.

7. 4. Types of Unemployment
4.1 Demand Deficient Unemployment
Demand deficient unemployment occurs in a recession or period
of very low growth. If there is insufficient aggregate demand, firms
will cut back on output. If they cut back on output, then they will
employ fewer workers. Firms will either cut back on recruitment or
lay off workers. The deeper the recession, the more demand
deficient unemployment
there will be. This is often
the biggest cause of
unemployment, especially
in a downturn. This is also
known as cyclical unemployment – referring to how unemployment
increases during an economic downturn.
4.2 Structural Unemployment
This is unemployment due to inefficiencies in the labour market. It may occur due to a mismatch of skills or
geographical location. For example, structural unemployment could be due to:
 Occupational immobility. There may be skilled jobs available, but many workers may not have the
relevant skills. Sometimes firms can struggle to recruit during periods of high unemployment. This is
due to the occupational immobility.
 Geographical immobility. Jobs may be available in London, but, unemployed workers may not be
able to move there due to difficulties in getting housing e.t.c.
 Technological change. If an economy goes through technological change, some industries will
decline. This is likely to lead to structural unemployment. For example, new technology (nuclear
power) could make coal mines close down leaving many coal miners unemployed.
4.3 Real Wage Unemployment
This occurs when wages are artificially kept above the equilibrium. For example, powerful trades unions or
minimum wages could lead to wages above the equilibrium leading to an excess supply of labour (this
assumes labour markets are competitive) Keynesian analysis suggests a fall in AD can lead to real wage
unemployment as wages are sticky downwards and a fall in AD doesn’t lead to wages clearing.
4.4 Frictional Unemployment
This occurs when workers are in between jobs e.g. school leavers take time to find work. There is always
likely to be some frictional unemployment in an economy as people take time to find a job suited to their
skills.
4.5 Voluntary Unemployment
Unemployment
Voluntary
Unemployment
Demand Dedicit
Unemployment
Structural
Unemployment
Real Wage
Unemployment
Frictional
unemployment

8. This occurs when workers choose not to take a job at the going wage rate. For example, if benefits offer a
similar take home pay to (wage – tax), the unemployed may feel there is no incentive to take a job
5. Other Concepts about Unemployment
5.1 Seasonal Unemployment
In certain regions, unemployment may be seasonal e.g. unemployment rises in winter when there are no
tourists.
5.2 Disguised Unemployment
Often unemployment statistics don’t include certain types of workers. For example, those put on incapacity
benefit may not be counted as unemployed, but, it may really be a type of structural unemployment.
See: Disguised Unemployment
5.3 Natural Rate of Unemployment
Natural Rate of Unemployment. This is the level of unemployment when the labour market is in equilibrium.
It is the difference between the labour force and those willing and able to accept a job at going wage rate.
It encompasses the different supply side unemployment like frictional and structural unemployment.
5.4 Under- Employment
This is when people have a job, but it is part time or temporary. They would like to work full time, but only
have a part time income.

9. 6. Applications of Unemployment Statistics
Unemployment is an important statistic used by the government to gauge the health of the economy. If
the unemployment rate gets too high (around 6 percent or more), the government will try to stimulate the
economy and create jobs.
If the above mentioned doesn't work, then the federal government will use expansionary fiscal policy. It can
directly create jobs by hiring employees for public works projects.
It can indirectly create jobs by stimulating demand with extended unemployment benefits. These benefits
aid the unemployed until they can find jobs. These are some of the unemployment solutions the
government has at its disposal.
References
https://web.stanford.edu/~rehall/Theory_Natural_Unemployment.pdf
http://www.reed.edu/economics/parker/s10/314/book/Ch14.pdf
http://faculty.euc.ac.cy/ssavvides/ECO102-NOTES.PDF/ECO102-Ch28-Unemployment
https://www.thebalance.com/what-is-unemployment-3306222
https://www.tutor2u.net/economics/reference/unemployment-measuring-unemployment