To be able to explain how unemployment and the unemployment rate are calculated and be able to explain the terms that are used in these calculations (i.e. labor force, employment, and unemployment). (Ch. 9.1 and notes) o Unemployed = not working but actively searching o Labor force = employed + unemployed (or working & searching for a job) o Unemployment rate = unemployed / labor force To be able to explain and correctly use and calculate the underemployment rate (U-6) and the labor force participation rate. (Ch. 9.1 and notes) o Marginally attached workers are those who’ve looked in the past 12 months but not the last month o The “underemployment rate” (U-6 or broad measure) going beyond the usual unemployment rate o U-6 Unemployment rate = (unemployed + m. attached + part time want full)÷(labor force + marginal attached) o Labor force participation rate = labor force / population aged 16+ To be able to explain the natural rate of unemployment and its connection to potential GDP. (Ch. 9.2, 10.1, and notes) o The natural rate of unemployment is the rate of unemployment when: Cyclical unemployment is 0 The unemployment rate likely from 4.5% to 6% At “full employment” Can be below the natural rate for awhile ex : 2000 o Implications: The natural rate of unemployment is a decent measure of the “normal” unemployment rate.
To be able to explain what is meant by frictional, structural, and cyclical unemployment. (Ch. 9.2 and notes) o Total unemployment rate = cyclical unemployment rate + frictional unemployment rate + structural unemployment rate Cyclical : It is the unemployment caused by the upswings and downswings of business cycles in the economy. During an upswing (expansionary phase of a business cycle) unemployment goes down. During a downswing (contraction phase of a business cycle) unemployment goes up. This kind of unemployment, fluctuates with business cycles. Frictional : It is unemployment between jobs. It is also unemployment in the interim period between my graduating from school and finding the best fitting job for me. It is unemployment caused by labor mobility. Unemployment that comes from people moving between jobs, careers, and locations. Structural : It is unemployment due to lack of skills demanded by the market place. Unemployment that comes from there being an absence of demand for the workers that are available. To be able to explain how the labor force, employment, unemployment, the unemployment rate, underemployment rate (U- 6), the percent of those unemployed 27 weeks or more, and the labor force participation rate behaved since 1970, over the business cycle, and their current approximate values. (notes) o See graphs To be able to explain labor market turnover -- i.e. job creation and destruction over time. (Ch. 9.1) o From Okun’s Law, we need 3% growth just to keep the unemployment rate constant; faster growth is needed to cut the unemployment rate. o With today’s slower labor force growth & smaller Y/L ↑ , we need less than 3% growth to keep unemployment constant. To be able to use Okun's Law to explain the relationship between unemployment and real GDP. (notes)
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