Unemployment and labor force participation rate Flashcards
What is the formula for the unemployment rate?
(unemployment / labor force) x 100
what is the formula for the labor force participation rate?
(labor force/ working age population) x 100
Who does the working age population consist of?
Those over 16 who are not in the military and not institutionalized.
Who is considered “employed”?
1) If they did any work as paid employees in the reference week.
2 )they work in their own business/farm.
3) they work without pay for atleast 15 hours at a family farm/business.
4) if they were temporarily absent due to illnesses, management disputes, weather, vacation.
What are all the different characteristics one needs to possess to be considered “unemployed”?
1) they were available for work
2) they did not work for the reference week
3) they made efforts to find employment in during the 4 week period ending with their reference week
Who is a discouraged worker?
Someone who is available for a job but has not looked for a job for the past 4 weeks because they believe no jobs are available for them.
They are NOT counted as unemployed.
What explains the differences between in labor force participation across countries?
1) Incentives.
Differences in incentives = taxes and unemployment benefits.
High taxes - lower incentive to work - lower LFPR.
High unemployment benefits - higher incentive to work - higher LFPR.
incentive to work has to be > than benefit of leisure.
2) Cultural factors (eg- rise in women employment increased LFPR)
What is frictional unemployment?
Frictional unemployment is a short term unemployment where there is a gap between information of jobs available to unemployed people.
It is due to a scarcity of information.
What is seasonal unemployment?
short term employment due to factors such as weather, tourist patterns or other seasonal factors.
What is structural unemployment?
What are the causes of structural unemployment?
Long term persistent unemployment due to long lasting shocks or permanent changes in the economy.
Causes of structural unemployment:
1) globalization
2) oil shocks
3) large shocks
4) new information technologies
What causes high unemployment in Europe compared to the US?
Many unions
High employee protection regulations
High hiring and firing costs
Higher minimum wages
What is cyclical unemployment?
short term unemployment due to changes in business cycle
why is lower growth rate correlated with higher unemployment rates?
1) idle labor and capital means economic growth is not maximized. this lowers ability for economy to create more jobs.
2) lower gdp means firms lay off workers.
What is full employment/ natural rate of unemployment?
when there is no cyclical unemployment.
