Economics / Unit 8: Measuring the Economy: GDP, Unemployment and Inflation
8.4 Unemployment
Notes
- The labor force is everyone 16 or older who is employed or unemployed. To count as unemployed, a person must be without a job and have actively looked for work in the past four weeks (or be waiting to return from a layoff).
- Unemployment rate $\displaystyle = \frac{\text{unemployed}}{\text{labor force}} \times 100\%$.
- Labor force participation rate $\displaystyle = \frac{\text{labor force}}{\text{working-age population}} \times 100\%$.
- Worked example: 152 million employed and 8 million unemployed make a labor force of 160 million. The unemployment rate is $\displaystyle \frac{8}{160} = 5\%$. If the working-age population is 250 million, participation is $\displaystyle \frac{160}{250} = 64\%$.
- Discouraged workers have given up looking, so they are not counted in the labor force. Underemployed workers (part-time but wanting full-time) count as employed.
| Type | Cause | Example |
|---|---|---|
| Frictional | time spent between jobs | a graduate searching for a first job |
| Structural | skills no longer match available jobs | a worker replaced by automation |
| Cyclical | a recession lowers demand | factory layoffs in a downturn |
| Seasonal | jobs vary with the seasons | a ski instructor in summer |
- Full employment means no cyclical unemployment; some frictional and structural unemployment always remains.
Practice
A country has 94 million employed people and 6 million unemployed people. What is the unemployment rate?
Labor force $= 94 + 6 = 100$ million, and $\displaystyle \frac{6}{100} = 6\%$.
A coal miner loses his job when the mine closes for good, and his skills do not match the jobs available nearby. This is:
A lasting mismatch between workers' skills and available jobs is structural.
A woman stopped looking for work six months ago because she believed no jobs were available. In official statistics she is:
Only people who looked for work in the past four weeks count as unemployed.
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