IDENTIFYING UNEMPLOYMENT How Is Unemployment Measured? Categories of Unemployment The problem of unemployment is usually divided into two categories, the long-run problem and the short-run problem. The natural rate of unemployment The cyclical rate of unemployment
2007 Thomson South-Western How is Unemployment Measured? Natural Rate of Unemployment The natural rate of unemployment is unemployment that does not go away on its own even in the long run. It is the amount of unemployment that the economy experiences in the long-run.
2007 Thomson South-Western How Is Unemployment Measured? Cyclical Unemployment Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate. It is associated with short-term ups and downs of the business cycle.
2007 Thomson South-Western How Is Unemployment Measured? Describing Unemployment: Three Basic Questions How does government measure the economys rate of unemployment? What problems arise in measuring the unemployment rate?
2007 Thomson South-Western How Is Unemployment Measured? Unemployment is measured: by the Bureau of Labor Statistics (BLS) in the US. by the Turkish Statistical Institute (TURKSTAT) in Turkey.
2007 Thomson South-Western How Is Unemployment Measured? Every three months, TURKSTAT conducts Household Labor Force Surveys. Based on the answers to the survey questions, TURKSTAT places each adult (population over the age 15) into one of three categories: Employed (includes Underemployed as well) Unemployed Not in the labor force
2007 Thomson South-Western How Is Unemployment Measured? Population = Children + Adult Population Adult Population = Employed + Unemployed + Not in the Labor Force
2007 Thomson South-Western How Is Unemployment Measured? Employed vs. unemployed A person is considered employed if s/he has spent some of the previous week working at a paid job. A person is unemployed if s/he is looking for a job, is on temporary layoff, or is waiting for the start date of a new job.
2007 Thomson South-Western How Is Unemployment Measured? A person is underemployed if s/he is looking for another job because: not working full time when s/he wants to not employed in his/her profession getting paid too little. A person who is not looking for a job, a full-time student, a housewife, a retiree, ill, old or disabled is not in the labor force.
2007 Thomson South-Western How Is Unemployment Measured? Labor Force The labor force is the total number of workers, including the employed and the unemployed. Labor Force = Employed + Unemployed.
2007 Thomson South-Western How Is Unemployment Measured? The unemployment rate is calculated as the percentage of the labor force that is unemployed.
2007 Thomson South-Western How Is Unemployment Measured? The underemployment rate is calculated as the percentage of the labor force that is underemployed.
2007 Thomson South-Western How Is Unemployment Measured? The labor-force participation rate is the percentage of the adult population that is in the labor force. Labor force participation rate Labor force Adult population 100 X
2007 Thomson South-Western How Is Unemployment Measured? Turkeys figures show declining unemployment rates during 2002-2004.
2007 Thomson South-Western Figure 2 U.S. Unemployment Rate Since 1960 10 8 6 4 2 0 19701975196019651980198519902005 Percent of Labor Force 19952000 Natural rate of unemployment Unemployment rate
2007 Thomson South-Western Figure 3 U.S. Labor Force Participation Rates for Men and Women Since 1950 100 80 60 40 20 0 1950195519601965197019751980198519902000 Labor-Force Participation Rate (in percent) Women Men 1995 2005
2007 Thomson South-Western Problems in Measuring the Unemployment Rate It is difficult to distinguish between a person who is unemployed and a person who is not in the labor force. Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, dont show up in unemployment statistics. Other people may claim to be unemployed in order to receive unemployment insurance, even though they arent looking for work.
2007 Thomson South-Western Problems in Measuring the Unemployment Rate Existence of a large underground economy in Turkey. Large numbers appear to be not in the labor force but in fact they work.
2007 Thomson South-Western Why Are There Always Some People Unemployed? In an ideal labor market, wages would adjust to balance the supply and demand for labor, ensuring that all workers would be fully employed. Quantity of labor Wage Labor Supply Labor Demand WEWE QEQE
2007 Thomson South-Western Why Are There Always Some People Unemployed? Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suit their tastes and skills.
2007 Thomson South-Western Why Are There Always Some People Unemployed? Structural unemployment is the unemployment that results because the quantity of labor demanded (# of jobs available) in some labor markets is always smaller than quantity of labor supplied. This is because the actual wage rate is kept above the equilibrium wage rate due to: Minimum wage laws Unions Efficiency wages
2007 Thomson South-Western Frictional Unemployment: JOB SEARCH Job search is the process by which workers find appropriate jobs given their tastes and skills. It results from the fact that it takes time for qualified individuals to be matched with appropriate jobs. Job search causes frictional unemployment.
2007 Thomson South-Western Frictional Unemployment: JOB SEARCH Job search is not due to a wage rate higher than equilibrium. Therefore job search does not cause structural unemployment.
2007 Thomson South-Western Why Some Frictional Unemployment Is Inevitable Frictional unemployment is inevitable because the economy is always changing. Changes in the composition of demand among industries or regions are called sectoral shifts. Ex: From agriculture towards manufacturing and services in Turkey. It takes time for workers to search for and find jobs in new sectors.
2007 Thomson South-Western Public Policy and Job Search Internet helps better information flow. Government programs can reduce the time it takes unemployed workers to find new jobs. These programs include the following: Government-run employment agencies. Ex: Turkish Job Placement Agency- Trkiye Kurumu Public training programs. Unemployment insurance.
2007 Thomson South-Western Public Policy and Job Search Unemployment insurance is a program that makes payments for a limited time to insured workers after they become unemployed. Aim is to protect workers. Unemployment insurance fund is supported by current workers, employers and the government.
2007 Thomson South-Western Public Policy and Job Search Unemployment insurance improves the chances of workers being matched with the jobs that better fit their skills and preferences. So may increase labor productivity. may increase the amount of frictional unemployment. Because of less pressure to find a job, unemployed workers may reduce their job search effort.
2007 Thomson South-Western Structural Unemployment Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded. Structural unemployment is often thought to explain longer durations of unemployment. Why is there Structural Unemployment? Minimum-wage laws Unions Efficiency wages
2007 Thomson South-Western MINIMUM-WAGE LAWS When the minimum wage is set above the level that balances supply and demand, it creates unemployment. Minimum wage law (MWL) is not the most important cause of structural unemployment because most wages are above the minimum wage. Therefore MWL is not binding for many workers. It is binding only for low skilled labor.
2007 Thomson South-Western MINIMUM-WAGE LAWS In Turkey, gross minimum wage: 562,50 YTL net minimum wage: 403,02 YTL 159,48 YTL difference includes income tax (15%), social security premium (14%), unemployment insurance (1%) cost to employer: 683,44 YTL 120,94 YTL difference includes social security premium (19,5%), unemployment insurance (2%)
2007 Thomson South-Western Figure 4 Unemployment from a Wage Above the Equilibrium Level Quantity of Labor 0 Surplus of labor = Unemployment Labor supply Labor demand Wage Minimum wage LDLD LSLS WEWE LELE
2007 Thomson South-Western UNIONS AND COLLECTIVE BARGAINING A union is a worker association that bargains with