Unemployment & Business Cycle Business Cycle Causes 1. Irregularities of Investment 2. Change in productivity 3. Changes in total spending • Durable goods are most susceptible to affects of business cycle. Why? GDP and Business Cycle Unemployment Under 16/ institutionalized 74.7 mil ▫ People who are able and willing to work ▫ About 50% of population • Total U.S. population split into 4 groups 1. Under 16 or institutionalized 2. “Not in labor force” Discouraged workers College students, homemakers, retirees 3. Employed Work at least 1 hr in 2 weeks 4. Unemployed Not worked in past 2wks-12 months Total Population: 288.6 Million • Labor Force “Not in labor force” 71.4 mil Employed 134.2 mil Unemployed 8.3 mil Current Unemployment Data • Unemployment Rate (u%)= 9% (bls.gov), 9.8% (gallup poll) • Not in Labor Force: +3% ▫ Discouraged workers: +50% Types of Unemployment 1. Frictional ▫ “Between jobs” ▫ Voluntary move or fired/laid off ▫ Changes from month-month are inevitable • Frictional—market does not operate perfectly Types. . . 2. Seasonal ▫ Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc. 3. Structural ▫ Lack of skills or decline in industry ▫ i.e. High School drop-out, typewriter repairman Think “Creative Destruction” Geographical Migration of industry Overseas, urban to suburban Types. . . 4. Cyclical ▫ ▫ ▫ Higher unemployment from decline in spending Recessionary phase Most serious problem Full Employment • No Cyclical Unemployment • Level of unemployment when economy is at full potential • Best known as: Natural Rate of Unemployment (NRU) • Approx. 4-5% Why Unemployment is bad Okun’s Law: (Arthur Okun) ▫ Every 1% increase in u% causes 2% decrease in GDPr UR Practice Determine which of the following are unemployed. • If unemployed, then determine the type of unemployment. • If not unemployed, then write down ‘not in labor force.’ 1. Arvod cannot find work as a mall Santa in January. 2. Beulah leaves her job to become a stay at home mom. 3. Grover is laid off of work when the economy experiences a recession. 4. Tuabulu dropped out of his G.E.D. program and has difficulty finding work. 5. Boris, the human calculator, is replaced by the TI-83. 6. Nimrod leaves his job as a teacher to look for work in the fast food industry. 7. Queen Oli-go-poly graduates from college and begins looking for work. 8. Kimple has difficulty finding a job as a life guard after Labor Day. 9. Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He has difficulty finding a girlfriend. 10. Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.