To be able to explain how unemployment and the

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)