UNEMPLOYMENT

Nguyễn Việt Hưng

OBJECTIVES
 How to measure unemployment rate
 Understand different categories of
unemployment
 Introduce several policies for reducing
unemployment

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HOW IS UNEMPLOYMENT
MEASURED?
 Based on the answers to the survey
questions, the BLS places each adult into one
of three categories:
 Employed
 Unemployed
 Not in the labor force

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 THE BREAKDOWN OF THE POPULATION

Employed
Labor Force
(146 million)
(154.5 million)

Adult
Population
(233.4 million)
Unemployed (8.5 million)

Not in labor force

(78.9 million)

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HOW IS UNEMPLOYMENT
MEASURED?
 A person is considered employed if he or she is
in the working-age range and has spent most of
the previous week working at a paid job.

 A person is unemployed if he or she is in the

working age range and being on temporary
layoff, is looking for a job, or is waiting for the
start date of a new job.

 A person who fits neither of these categories,

such as a full-time student, homemaker, or
retiree, is not in the labor force.
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HOW IS UNEMPLOYMENT
MEASURED?
 Labor Force
 The labor force is the total number of workers,
including both the employed and the
unemployed.
 The BLS defines the labor force as the sum of the
employed and the unemployed.

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HOW IS UNEMPLOYMENT MEASURED?
 The labor-force participation rate is
the percentage of the adult population
that is in the labor force.

Labor force participation rate

Labor force
 100%
Adult population

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HOW IS UNEMPLOYMENT MEASURED?
 The unemployment rate is calculated
as the percentage of the labor force
that is unemployed.

Number unemployed
Unemployment rate= 100%
Labor force

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 UNEMPLOYMENT RATES IN DEVELOPED
COUNTRIES
12.0
10.3
10.0 9.6

8.0 7.2
Unemployment rate

6.0 6.0
6.0 5.5
5.2

4.0 4.0 4.2

4.0

2.0

0.0
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Countries

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 Employment, Unemployment,
and the Labor Force: 1960–1996

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The Changing Face of
the Labor Market

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Aggregate Hours: 1960–1996

Which indicator is more closely related to the

performance of the economy – unemployment rate or
aggregate hours?
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Aggregate Hours: 1960–1996

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Real Wage Rates: 1960–1996

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Labor Market Flows

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 Unemployment by Duration
Less than 5 weeks

5-14 weeks

Business cycle peak

15-26 weeks
Business cycle trough

27 weeks and over

0 10 20 30 40 50
Percentage of unemployment
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IDENTIFYING UNEMPLOYMENT
 Categories of Unemployment
 The natural rate of unemployment
 It is the amount of unemployment that the economy
normally experiences.
 It does not go away on its own even in the long run.

 The cyclical rate of unemployment

 It refers to the year-to-year fluctuations in unemployment
around its natural rate.
 It is associated with with short-term ups and downs of the
business cycle.
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Unemployment and Real GDP

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IDENTIFYING UNEMPLOYMENT
 Natural rate of unemployment: consisting
of frictional and structural unemployment
 Frictional unemployment: occurs with the
normal workings of the economy, such as workers
taking time to search for suitable jobs and firms
taking time to search for qualified employees
 Structural unemployment: occurs due to
structural imbalance in the labor market
 Prevailing wage exceeds the equilibrium level,

so the number of labors supplied exceed the

number of labors demanded

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CAUSES OF STRUCTURAL UNEMPLOYED
 Minimum-wage law wage

 Trade union
 Efficiency wage
Prevailing wage
theory
 Quality of labor
 Efforts of labor Equilibrium wage
 Turnover rate
 Health of labor

labor
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PUBLIC POLICY AND JOB
SEARCH
 Government programs can affect the time it
takes unemployed workers to find new jobs.
 These programs include the following:
 Government-run employment agencies
 Public training programs
 Unemployment insurance

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PUBLIC POLICY AND JOB
SEARCH
 Government-run employment agencies give
out information about job vacancies in order
to match workers and jobs more quickly.
 Public training programs aim to ease the
transition of workers from declining to
growing industries and to help disadvantaged
groups escape poverty.

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PUBLIC POLICY AND JOB
SEARCH
 Unemployment insurance is a government
program that partially protects workers’
incomes when they become unemployed.
 Offers workers partial protection against job
losses.
 Offers partial payment of former wages for a
limited time to those who are laid off.

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PUBLIC POLICY AND JOB
SEARCH
 Unemployment insurance increases the
amount of search unemployment.
 It reduces the search efforts of the
unemployed.
 It may improve the chances of workers being
matched with the right jobs.

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