Text 3. 2. Unemployment

UNIT 3 MACROECONOMIC INSTABILITY

(1) The civilian labour force includes all individuals 16 years of age and older who are either working (employed) plus the number of persons not working but actively looking for work (unemployed).

(2) The employed. People are considered employed if they did any work for pay or profit during the survey week. This includes not only regular full-time year-round employment but also all part-time and temporary work. Workers are also counted as "employed" if they have a job at which they did not work during the survey week because they were: on vacation; ill; taking care of some other family or personal obligation (e.g., due to child-care problems); on maternity or paternity leave; involved in an industrial dispute (strike or lock-out); prevented from working by bad weather; medical problems.

(3) The unemployed. On the other hand, individuals are classified as "unemployed" if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work. The unemployed include all individuals who are not working for pay but are waiting to be called back to a job from which they have been temporarily laid off.

In the early stages of an economic boom, unemployment often rises. This is because people join the labor market (give up studying, start a job hunt, etc.) because of the improving job market. Similarly, during a recession, the increase in the unemployment rate is due to people leaving the labor force.

Based on the source of unemploy­ment, economists normally distinguish among four basic types: frictional, structural, seasonal, and cyclical unemployment.

(4) Frictional Unemployment. Just as employers do not often hire the first appli­cant who comes through the door, workers do not always accept their first job offer. Both employers and job applicants need time to explore the job market. Employers need time to find out about the talent available, and job seekers need time to find out about openings. During the time required to accumulate and act on all this information, job vacancies remain unfilled. The time required to bring together labor suppliers and labor demanders results in frictional unemployment.

Frictional unemployment is regarded as inevitable and voluntary. Typically, it does not last long and is, at least in part, desirable. Why desirable? Because it results in a better match-up between workers and jobs, so the entire economy becomes more efficient.

(5) Structural Unemployment. Unemployment arising from a mismatch of skills or geographic location is called structural unemployment. Structural unemployment occurswhen there is a mismatch between the supply and the demand for workers: that is unemployed workers often do not have the skills demanded by employers or live in the area where their skills are no longer demanded in the job market. Whereas most frictional unemployment is short-term and voluntary, structural unemployment poses more of a prob­lem because workers must develop other skills or must seek work elsewhere.

Moving to where the jobs are is easier said than done, since people prefer to remain near friends and relatives. Moreover, the available jobs may be in areas where the cost of living is much higher, or living conditions are poor.

(6) Cyclical Unemployment. Unemployment arising from the actual level of economic activity is called cyclical unemployment. Cyclical unemploymentreflects the phase of the business cycle the economy is currently in. For example, high unemployment implies low real GDP – human recourses are not being used as completely as possible and thus wasting opportunities to produce goods and services.

Unlike frictional and structural un­employment, cyclical unemployment is characterized by a job shortage. The unemployment rate continues to increase during the contraction phase of the business cycle and reaches its maximum at or near the trough. As the economy enters the expansion phase of the business cycle, firms increase output and employment, and the unemployment rate falls. The unemployment rate continues to decrease during the expansion phase and reaches the minimum at or near the peak. At the peak of the business cycle, cyclical unemployment is negligible.

(7) Seasonal Unemployment. Unemployment caused by seasonal shifts in labor supply and demand during the year is called seasonal unemployment. It occurs in industries such as construction, agriculture, and tourism, where the weather affects the demand for labor. Little farming or building occurs during winter months in regions where the ground freezes. Likewise, the Christmas holidays increase the demand for those who can serve as sales clerks, postal carriers, or Santa Clauses. Those employed in seasonal occupations know they will probably be unemployed during particular months. Some may even have purposely chosen a seasonal occupation. To eliminate seasonal unemployment, we might have to outlaw winter and abolish Christmas.

(8) “FullEmployment”. Speaking about unemployment we can’t but mention the term of “full employment”. A certain percentage of people is usually unemployed at any given time. Zero unemployment (i.e. 0.0%) would provide “overheating” of the economy, resulting in a shortage of qualified people for many specific jobs. So when economists talk about “fullemployment”, they do not mean zero unemployment, since there will always be some frictional, structural, and seasonal unemployment. It’s unavoidable; hence “full employment” isdefined as something less than employment of 100% of the labour force. Many economists consider 4 or 5 percent of the available work force as the mark of the economy operating at full employment.

(9) It is possible to be neither employed nor unemployed, i.e., to be outside of the "labour force". These are people who have no job and are not looking for one. Many of these are going to school or are retired. Still others have a physical or mental disability which prevents them from participating in labor force activities.

Children and the elderly are typically not counted as part of the labour force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labor market.

(10) Thediscouraged workers. Employment and the labor force include only work done for monetary gain. Hence, a homemaker is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. The “idle rich” may pursue a life of leisure. Some people may be unable to work because of long-term illness. Finally, some people may have given up their jobs searches in frustration. These are so-called discouraged workers who have, in fact, dropped out of the labour force and thus cannot be counted as unemployed.

Because the official unemployment rate, which isthe number of unemployed people expressed as a percentage of the labour force,does not include discouraged workers, the true extent of unemployment in the economy tends to be understated.

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