CHAPTER OUTLINE

Unemployment Measuring UnemploymentComponents of the Unemployment RateThe Costs of Unemployment

InflationThe Consumer Price IndexThe Costs of Inflation

Long-Run GrowthOutput and Productivity Growth

By definition International Labor Organization

(ILO) unemployed is anyone who is:

out of work,

looking for work and

ready to start working…

In economics, unemployment refers to the condition of unwanted job losses, or willing workers without jobs.

A person who is :

Physically FitMentally soundWell qualifiedWilling to work at prevailing wage rate

BUT DOES NOT GET JOB, THIS SITUATION IS CALLED UNEMPLOYMENT

What is Unemployment?

Turkey :

employed

Comprises all the persons 15 years of age and over and

included in the "Persons at work" and "not at work".

unemployed

comprises all persons 15 years of age and over who

were not employed during the reference period who

have used at least one channels for seeking a job

during the last three months and were available to

start work within 2 weeks.

The basic concepts involved in identifying the employed and unemployed are quite simple:

People with jobs are employed. People who are jobless, looking for jobs, and available for work are unemployed. People who are neither employed nor unemployed are not in the labor force.

PERSONS NOT IN LABOUR FORCE :

1. Sought a job, but not using the channel in the last three months 2. Available to start a job but not actively seeking 3. Seasonal workers 4. Housewives 5. Student 6. Retired persons 7. Having Property Income 8. Disabled , old or ill

Labor Force - The total number of people employed or seeking employment in a country or region. Also called

work force.

population = labor force + not in labor force

labor force participation rate

The ratio of the labor force to the total population.

labor forcelabor force participation rate =

population

Unemployment Rates by Demographic Group, 1982 and 2010

Years November 1982 June 2010

Total 10.8 9.5White 9.6 8.6

Men 20+ 9.0 8.9Women 20+ 8.1 7.1Both sexes 16–19 21.3 23.2

African American 20.2 15.4MenWomen

20+20+

19.316.5

17.411.8

Both sexes 16–19 49.5 39.9

Unemployment Rates for Different Demographic Groups

The decline in the measured unemployment rate that

results when people who want to work but cannot find

jobs grow discouraged and stop looking, thus dropping

out of the ranks of the unemployed and the labor force.

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Duration of unemployment

represents the length of time

(through the current reference

week) that persons classified as

unemployed had been

continuously looking for work.

For persons on layoff, duration of

unemployment represents the

number of full weeks since the

end of their most recent period

of employment.

Some Unemployment Is Inevitable

When we consider the various costs of

unemployment, it is useful to categorize

unemployment into three typestypes:

Frictional unemployment

Structural unemployment

Cyclical unemployment

frictional unemployment

The portion of unemployment that is due to the normal

turnover in the labor market;

used to denote short-run job/skill matching problems.

structural unemployment

The portion of unemployment that is due to

changes in the structure of the economy that

result in a significant loss of jobs in certain industries.

natural rate of

unemployment

The unemployment rate that

occurs as a normal part of the

functioning of the economy.

Sometimes taken as the sum

of frictional unemployment

rate and structural

unemployment rate.

cyclical unemployment

Unemployment that is above frictional plus structural

unemployment.

EFFECTS TO THE ECONOMY & GOVERNMENT

Unemployment leads to under-utilization of resources

Economy therefore cannot reach its optimum production level

Productivity falls….GDP falls…economic growth falls

Higher crime rates…government spending on security… etc-police … increases

In developed countries they become a burden to the government … must pay more unemployment benefits

Government tax revenue falls…since less people working

The CPI market basket shows how a typical consumer divides his or her money among various goods and services.

Most of a consumer’s money goes toward housing, transportation, and food and beverages.

The CPI Market Basket

During inflations, most prices

— including input prices like wages —

tend to rise together, and input prices determine both the

incomes of workers and the incomes of owners of capital and

land.

So inflation by itself does not necessarily reduce ones purchasing

power.

The effects of inflation depends in part on whether inflation is :

anticipated oranticipated or unanticipatedunanticipated

Anticipated inflation: When people/businesses can make accurate predictions of inflation,

they can take steps to protect themselves from its effects. e.g. Households may also be able to switch savings into deposit

accounts

offering a higher nominal rate of interest or into other financial assets

such as housing or equities where capital gains over a period of time might outstrip general price inflation.

e.g. Companies can adjust prices and lenders can adjust interest rates.

Unanticipated inflation: When inflation is volatile from year to year, it becomes difficult for

individuals and businesses to correctly predict the rate of inflation in the near future.

Unanticipated inflation occurs when economic agents

(i.e. people, businesses and governments) make errors in their inflation forecasts.

output growth The growth rate of the output of the entire economy.

per-capita output growth The growth rate of output per person in the economy.

productivity growth The growth rate of output per worker.

consumer price index (CPI)

cyclical unemployment

discouraged-worker effect

employed

frictional unemployment

labor force

labor force participation rate

natural rate of unemployment

not in the labor force

output growth

per-capita output growth

producer price indexes (PPIs)

productivity growth

real interest rate

structural unemployment

unemployed

unemployment rate

1.labor force = employed + unemployed

2. population = labor force + not in labor force

3.

4.

unemployed employed

unemployed ratent unemployme

population

forcelabor rateion participat forcelabor