Lecture 4: Unemployment

Lecture Unemployment Dr.Do Xuan Luan Faculty of economics and rural development (FERD), Thai Nguyen University of Agriculture and Forestry (TUAF) All lectures of the course Introduction to macroeconomics; Gross Domestic Product (GDP); Economic growth; Unemployment Inflation; Aggregate Demand & Aggregate Supply (AS-AD model); Fiscal Policy; Monetary Policy; Combined effects of monetary and fiscal policy; 10 Trading with the world; Contents Definition & costs of unemployment Measuring unemployment Causes of unemployment Policies for creating employment www.themegalle ry.com Why unemployment matters? It implies costs Loss of output and Income Loss of human capital Increase in crime Loss of human dignity What is unemployment?  Unemployment represents the number of people in the work force who want to work but not have a job  Exclusion:  “missing workers” —potential workers who have either given up looking for work or aren’t working  Discouraged workers as those who want a job but are not actively searching for one because they believe there are no jobs available for them www.themegalle ry.com Who is counted as unemployed? Unemployed Do not have a job Actively look for a job in the past one month Currently available to work Temporarily laid off and are waiting to be called back to that job www.themegalle ry.com Measuring unemployment: Unemployment rate  Unemployment rate is defined most basically as the percentage of the total labor force that is unemployed but actively seeking employment and willing to work  𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑟𝑎𝑡𝑒  𝑈= 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 ∗ 100%  Example:  Labor force: 41 million people  Unemployed: million people  𝑈= 41 ∗ 100% = 2.38%  Interpretation: In every 100 people in the labor force, 2.38 people are unemployed Who is not included in labor force? Excluded from labor force Students Retired Unwilling to work Disable Kids Prisoners Exercise: Recall example of unemployment According to data of IMF ADB, on1/7/2002, total population of Vietnam was 80 milliion people The total labor force employed was 41 The total labor force unemployed was million people There was a total million people at working age but not included in labor force (i.e: students, housewife, retired ) Questions: 1) Calculate total labor force? 2) The rate of participating in the labor force? 3) Unemployment rate? www.themegalle ry.com Unemployment in Vietnam 2015 Population 90,728,900 (Vietnam 2014) Labor force Not in labor force 54,206,654 (59.75%) 36,522,246 (40.25%) Employed Unemployed 53,230,934 (98.20%) 975,720 (1.80%) Source: The Ministry of Labor, Invalids and Social Affairs; Unemployment rate of Vietnam www.themegalle ry.com Types of unemployment Frictional unemployment Time periods between jobs when workers or The process of matching workers and jobs - Search for jobs - Transit from one job to another Structural unemployment (skills gap) A decline in a number of jobs available - Lack of demand - Technology change - Retraining of workers Cyclical unemployment: A slowdown in the economic growth - Peak (U-) - Recession (U+) - Trough (U++) - Recovery (U-) www.themegalle ry.com Full employment Number of people looking for a job Number of job vacancies www.themegalle ry.com Labor market & natural unemployment At wage rate W1: Labor Price Labor force accept jobs  AB: nonvoluntary unemployment  BC: voluntary unemployment  AC: unemployed  W1C: total labor force Labor force W1 A B C E W0 F  W1A: labor forces are employed At wage W0: full employment (demand=supply)  EF: natural employment ( Unemployment is frictional and structural and there is no cyclical unemployment.) D L0 L1 Labor Quantity Policies for reducing unemployment Demand side to increased AD(+) Fiscal policy Taxes (-) Government spending (+) Monetary policy Interest rates (-) Supply side to reduce structural unemployment Education and training Improve labor market flexibility Improved geographical mobility Summary of key points 1) Unemployment represents the number of people in the work force who want to work but not have a job 2) Unemployment matters because it implies costs; 3) Three types of unemployment include frictional unemployment, structural unemployment and cyclical unemployment; 4) Policies to reduce unemployment should consider both aggregate demand and aggregate supply side www.themegalle ry.com Assignment 1) Compare the unemployment rate of Vietnam and Laos in the period 2010-2015; 2) Make comments on results www.themegalle ry.com www.themegallery.com [...]... have a job 2) Unemployment matters because it implies costs; 3) Three types of unemployment include frictional unemployment, structural unemployment and cyclical unemployment; 4) Policies to reduce unemployment should consider both aggregate demand and aggregate supply side www.themegalle ry.com Assignment 4 1) Compare the unemployment rate of Vietnam and Laos in the period 2010-2015; 2) Make comments... market & natural unemployment At wage rate W1: Labor Price Labor force accept jobs  AB: nonvoluntary unemployment  BC: voluntary unemployment  AC: unemployed  W1C: total labor force Labor force W1 A B C E W0 F  W1A: labor forces are employed At wage W0: full employment (demand=supply)  EF: natural employment ( Unemployment is frictional and structural and there is no cyclical unemployment. ) D.. .Unemployment rate of Vietnam www.themegalle ry.com Types of unemployment 1 Frictional unemployment Time periods between jobs when workers or The process of matching workers and jobs - Search for jobs - Transit from one job to another 2 Structural unemployment (skills gap) A decline in a number of jobs available - Lack of demand - Technology change - Retraining of workers 3 Cyclical unemployment: ... unemployment Demand side to increased AD(+) 1 Fiscal policy Taxes (-) Government spending (+) 2 Monetary policy Interest rates (-) Supply side to reduce structural unemployment 1 Education and training 2 Improve labor market flexibility 3 Improved geographical mobility Summary of key points 1) Unemployment represents the number of people in the work force who want to work but do not have a job 2) Unemployment