Unemployment

Question 1

Types of Unemployment

Answer 1

Voluntary ( voluntary, frictional, search), Involuntary (structural, cyclical/involuntary)

Question 2

How is unemployment rate determined?

Answer 2

people who are actively seeking work or are temporarily laid off / 16-64 year old people who want a jobs

Question 3

Okun’s Law

Answer 3

For every 1% unemployment, we lose 2-2.5% of GDP.

Question 4

Social costs of unemployment

Answer 4

Unemployed have higher rates of divorce, suicide, crime… When unemployment is high it is especially bad for minorities.

Question 5

Econ costs of unemployment

Answer 5

Gov Deficit goes up 130B bucks for every 1% increase, Okun’s Law.

Question 6

What is the ideal level of unemployment?

Answer 6

Used to be considered 4%, but that number may have risen. (The 4% are considered to be those between jobs– frictional and search) A liberal view would be that we should use government intervention to get back to 4%. A conservative view would say that the natural rate must be more like 6-7% because of changes in the labor force.