Unemployment

ECO110 Macroeconomics
Monsoon 2022

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Identification of Unemployment
• Measuring unemployment is carried out by national statistical
offices
• categorizes adults (aged 15 years or more) in one of three
categories
• Employed, Unemployed, Not in labor force
Labor force: number of employed + number of unemployed
The unemployment rate is the percentage of the labor force is
unemployed (also made by smaller groups: men, women etc.)

Unemployment rate = Number of unemployed X 100

Labor force
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Identification of Unemployment

• The rate of activity measures the percentage of the total adult

population belonging to the workforce
Labor force participation rate= Labor force X 100
adult population
• According to the recommendations of the International Labor Organization
(ILO), it is considered that a person is employed if he worked at least one
hour in the previous week in a paid job, or having a job and not work for
reasons like being on holiday. A person is unemployed if employment is
temporarily suspended, is actively seeking employment or are waiting for
the date arrives to take up a new job. A person who fits neither of the first
two categories, for example, a full-time student, a housewife or retiree, does
not belong to the active population.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 The natural rate of unemployment

Natural Rate of Unemployment:

The average rate around which the unemployment rate
fluctuates.
In a recession, unemployment rises above the natural rate.
In years economic expansion, unemployment rate falls
below the natural rate.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Unemployment Rate since 1960

This graph uses annual data on the U.S. unemployment rate to show the percentage
of the labor force without a job. The natural rate of unemployment is the normal level of
unemployment around which the unemployment rate fluctuates.
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Labor-Force Participation Rates for Men and Women since 1950

This figure shows the percentage of adult men and women who are members of the labor force.
Over the past several decades, women have entered the labor force, and men have left it.
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 India Unemployment Rate
• In India, the unemployment rate measures the number of people aged 15 and over actively looking for a
job as a percentage of the labour force.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 India Unemployment Rate
• In India, the unemployment rate measures the number of people aged 15 and over actively looking for a
job as a percentage of the labour force.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Unemployment Rate during pandemic

https://unemploymentinindia.cmie.com/

https://tradingeconomics.com/india/unemployment-rate

https://www.financialexpress.com/economy/indias-unemployment-rate-rises-to-five-week-high-check-latest-numbers/205
0858/

https://data.worldbank.org/indicator/SL.UEM.1524.ZS

https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 The Labor-Market Experiences of Various Demographic
Groups

This table shows the unemployment rate and the labor-force participation rate of
various groups in the U.S. population for 2009.
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Identification of Unemployment
• cyclical unemployment: Deviation of unemployment from its natural rate.
Provoked by the time it takes workers to seek employment
• Occurs even when wages are flexible and there are enough jobs available
• is because
• Workers have different abilities and preferences
• Jobs require different skills
• Geographical mobility of workers is not instantaneous
• The flow of information about jobs and candidates is imperfect

discouraged workers: People who would like to work

but they have given up looking for work.

If the period of unemployment is short is not a serious problem but

if the period is long and the other is considered a serious problem.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Why is there unemployment?

-By legislation on the minimum wage.

-By unions.

-For efficiency wages.

-For job search.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Legislation on minimum wage

When a minimum wage law forces the wage to remain

in the above that balances supply and demand level, raises the
amount of work and reduces the defendant compared to
equilibrium level. There is too much work. As more
workers willing to work than jobs, some
workers are unemployed.

That is, if the salary remains at a level some reason

above the equilibrium, the result is unemployment.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Minimum-Wage Laws

Structural unemployment
 Number of jobs – insufficient
Minimum-wage laws
 Can cause unemployment
 Forces the wage to remain above the equilibrium level
 Higher quantity of labor supplied
 Smaller quantity of labor demanded
 Surplus of labor – unemployment

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Minimum Wage Laws in India

https://www.india-briefing.com/news/guide-minimum-wage-india-2020-19406.ht
ml
/
https://
www.business-standard.com/article/economy-policy/law-on-assured-minimum-wa
ge-for-workers-faces-delay-as-govt-re-issues-draft-120070900829_1.html
https://
www.epw.in/engage/article/protection-workers-wages-india-labour-wage-code
https://clc.gov.in/clc/min-wages
 https://clc.gov.in/clc/node/645
https://
scroll.in/article/934142/in-charts-what-is-a-decent-minimum-wage-in-india-and-h
ow-a-new-law-could-change-it
https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Unemployment from a Wage above the Equilibrium Level
Wage
Surplus of labor = Labor
Unemployment supply

Minimum wage
WE

Labor
demand
0 LD LE LS Quantity of Labor

In this labor market, the wage at which supply and demand balance is WE. At this
equilibrium wage, the quantity of labor supplied and the quantity of labor demanded
both equal LE. By contrast, if the wage is forced to remain above the equilibrium level,
perhaps because of a minimum-wage law, the quantity of labor supplied rises to LS,
and the quantity of labor demanded falls to LD. The resulting surplus of labor, LS – LD,
represents
This is an open access unemployment.
resource distributed under the terms and conditions of the Creative Commons Attribution license
 Unions and collective bargaining
Labor union: Workers' association negotiating with employers
on wages and working conditions.

Collective negotiation: The process by which unions and workers

agree to conditions of employment.

Strike: Retreat organized work of a company by a

Union when the union and the company does not reach an agreement

When a union raises the wage above the equilibrium level raises the
quantity of labor and reduces the defendant, generating unemployment.
Improving the welfare of workers who stay busy, but
worsens of those who were previously employed and are now unemployed
as a result of a higher salary.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Why is there
unemployment?

Frictional unemployment: unemployment is because workers are slow to find

the job that best suits their tastes and their qualifications

Structural unemployment: unemployment is because the number of existing

jobs in some labor markets is insufficient to employ everyone who wants to
work

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Public policy and job search
• public employment agencies

• Public job training programs

• The Unemployment insurance It is a public program that partially

protects workers' incomes when they become unemployed
• You pay the worker a proportion of their salary for a limited time after
losing their jobs
• The Unemployment insurance It increases frictional unemployment
because it reduces the opportunity cost of being unemployed
• Some studies say the longer the worker can get unemployment insurance, the
higher the average duration of unemployment
• The urgency of finding employment

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 The theory of efficiency wages

According to this theory, companies are more efficient if wages are above the equilibrium level. For the
Thus, it can be profitable for them to maintain high wages, even if there overwork

Efficiency wages: higher than equilibrium wages are paid

by companies to increase worker productivity.

Health workers:A company may find it more profitable to pay high wages and have healthy and
productive workers to pay lower wages and have a less healthy and less productive workers. In other
words, concern about nutrition could explain why companies do not lower wages although there is
overwork.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 The theory of efficiency wages
The rotation of workers: Companies that have a higher turnover tend
have a higher production cost. So you may find it
profitable to pay a higher than equilibrium wages to reduce turnover
from the workers.

The effort of workers: A high salary motivates employees to strive

as if they were fired, they can not find work quickly by the same
salary. Therefore, companies pay higher than equilibrium wages,
rising unemployment and gives workers an incentive to not shirk its
responsibilities.

The quality of workers: Paying a high salary, leads workers

excellent to apply for their jobs. Thus, high wages
reduce moral hazard problem.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Alternative Measures of Labor Underutilization

The table
shows
various
measures of
joblessness
for the U.S.
economy. The
data are for
April 2010.
Source: US
Dept. of
Labor

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 The duration of unemployment
 The data:
 More periods of unemployment are short-lived medium or
long term.
 However, most of the time unemployment is attributable to
long-term unemployment.
 This long-term unemployment is probably structural and / or due
to sectoral shifts between very different sectors.
 Knowing this is important because it helps us to design more
feasible policies to succeed.

This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license
 Explaining the trend:
The trend in the real
Minimum wage
minimum wage is
similar to trend of
9
the natural rate of
unemployment.
8
7
Dollars per hour

6
minimum wage at
5
US $ 2006
4
3
minimum wage
two current US $
one
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
This is an open access resource distributed under the terms and conditions of the Creative Commons Attribution license