The document discusses different types of unemployment including frictional, structural, classical, seasonal, and cyclical unemployment. It defines the unemployment rate as the number of unemployed people divided by the total labor force. Structural unemployment occurs when workers' skills do not match available jobs, and can be caused by new technology, consumer demand shifts, or globalization. Cyclical unemployment rises during economic downturns as spending decreases and companies lay off workers. The document also notes the private and social costs of unemployment as well as its relationship to business cycles and taxes.

1. BS Economics 3A
Unemployment

2. Unemployment rate
 All the people that are capable to work (labor
force)
 Numbers of unemployed divided by labor
force
 Different ways of measuring labor force
 Open unemployment versus hidden one

3. Types of unemployment
 Frictional unemployment (market process)
 Structural unemployment (dynamic changes
in the economy)
 Classical unemployment (real wage rate is
too high) – 1929

4. Frictional Unemployment
 When people take time to find a job.
– Example: When someone is laid off, changes jobs, or need
time to find a job after graduating from school.

5. Types of unemployment
Structural Unemployment: When
workers’ skills do not match what jobs
are available for (structure of) the
current economy.
Causes of Structural Unemployment:
New Technology
New Resources
Changes in Consumer Demand
Globalization- Shift to foreign markets
Lack of Education

6. Types of unemployment
 Seasonal Unemployment: When industries slow or
shut down for a season of the year to make seasonal
shifts in production schedules and people lose their
jobs.
– Examples: When people who sell Halloween
costumes or Christmas trees are out of a job
because the holiday has passed.

7. Types of unemployment
 Cyclical Unemployment: Unemployment that goes
up during times of economic turmoil, and goes down
during times of economic prosperity.
– Examples: A recession causes people to save more
and spend less, because of this companies may slow
down production and lay off workers.

8. The unemployment rate
 The rate of unemployment is a great way to measure
the health of your economy.
 The Unemployment Rate is the percentage of a
nation’s labor force that is unemployed.
 The Labor Force is NOT every citizen.
 The Labor Force is made up of individuals 16 and
older who either have a job or are actively seeking
for a job.
 The Unemployment Rate is adjusted to account for
seasonal unemployment so that it is more accurately
reflective of the health of the economy.

9. Calculating the unemployment
rate
 To find the Unemployment Rate, we use the
following equation:
 For Example, if there are 7 million unemployed people. And
there are 150 million people in the civilian labor force, we have
the following rate of Unemployment:

10. Unemployment: voluntary of
involuntary?
 Voluntary is obviously used in cases of
personal decision to change the job
 Involuntary – when the decision is set by
socio-economic environment, not made by
the person

11. Classical attitude
 Voluntary – decision to adapt, or not adapt
 If the prospering firm goes bankrupt, one can
find another job, for example by lowering
wage rate
 I prefer to work at Harvard
 Is it voluntary or involuntary unemployment?

12. Keynesian definition of involuntary
unemployment
 „Men are involuntarily unemployed if, in the event of
a small rise in the price of wage-goods relative to the
money wage, both the aggregate supply of labor
willing to work for the current money-wage and the
aggregate demand for it at that wage would be
greater than the existing volume of employment”
 Translated into English – people are unemployed if
we can’t print some money and hire them

13. Costs of unemployment
 Private costs: lack of funds, for credit
payment, for health-care, in extreme cases
for food etc; mental problems
 Social costs: lower production, resources are
not employment to „full” extent, costs of
social programs etc.
 In Keynesian model – „spillover” effects

14. Unemployment and business cycle
 During recession unemployment usually rises
 Downward phase of the cycle is associated with
unemployment
 Cyclical unemployment – is usually considered as
involuntary
 Because it could be reduced with certain policies
 Which ones? It depends…

15. Unemployment and taxes
 On the supply side of labor market – more
decisive element is net income
 Lowered taxes increase disposable income
 Increased prices cause the seller of a good
to increase supply
 The same mechanism in the labor market

16. Goal: Full employment
 Zero Unemployment is always impossible in
a market economy.
 But we strive for Full Employment where no
cyclical unemployment exists in the
economy.
 An unemployment rate of about 4-6 percent
is normal during full employment.

17. Unemployment in Pakistan

19. QUESTIONS/COMMENTS