Macroeconomics Class for Lecture Nine and Ten

Macroeconomics

1. MACROECONOMIC S
Teacher: Dr. Ali Gul Khushik
Assistant Professor
Department ofEconomics
University of Sindh,
Jamshoro
Email: [email protected]

2. Unemployment and Employment
The working age population is the total
number of people aged 16 years and over who
are not in a jail, hospital, or some other form of
institutional care
The working-age population measure is used to
give an estimate of the total number of potential
workers within an economy
The working age population is divided into
those in the labor force and those not in the
labor force
The final category refers to those people are
voluntarily unemployed (those who do not
want work and therefore do not search a job

3. Employment and Unemployment
The labor force is further divided into
the employedand the unemployed
To be counted as unemployed, a
person must be available for work and
must be in one of three categories:

4. Employment and Unemployment
Without work but has made specific efforts
to find a job within the previous four weeks
Waiting to be called back to a job from
which he or she has been laid off

5. Population Labor Force Categories

6. Unemployment and Employment
Three Labor Market Indicators
◦The unemployment rate
◦The labor force participation rate
◦The employment-to-population
ratio…..

7. Employment and Unemployment
The unemployment rate is the
percentage of the people in the labor
force who are unemployed.
Unemployment rate =
Number of
people unemployed
Labor force
100

8. Unemployment and Employment
Labor force = Number of people employed
+ Number of people unemployed

9. Employment and Unemployment
The labor force participation rate is the
percentage of the working-age population who are
members of the labor force.
It is a measure of what proportion of a country's
population is employed or actively looking for
employment.
Higher the labor force participation rate, more of the
country's population is interested in working.
Labor force
participation rate
=
Laborforce
Working age
population
100

10. Employment and Unemployment
The employment-to-population ratio is
the percentage of people of working age
who have jobs.
Employment-to-
population ratio
=
Number of people
employed
Working-age
population
100

11. Unemployment and Employment
A numerical example
The Bureau of Labor statistics reported
the following data for US in a year
◦Labor force : 137,169,000
◦Employment : 130,777, 000
◦Working age population : 204,020,000
Calculate
a.Unemployment rate
b.Labor force participation rate
c.Employment to population ratio

12. Unemployment and Employment
Solution: a. Unemployment rate
◦Unemployment rate is 4.7 percent
◦The unemployment rate is the percentage
of the labor force that is unemployed.
◦The labor force is the sum of the people
employed and unemployed
◦The number of the people are
unemployed 6,392,000
◦This number is labor force less employed
population (137,169,000-130,777,000)

13. Unemployment and Employment
Solution: Unemployment rate
We know unemployment rate equals
the number of people unemployed
divided by the total labor force and
multiplied by 100
That is
6,392,000/137,169,000X100 = 4.7
%

14. Unemployment and Employment
Solution: b. The Labor force
participation rate
◦The labor force participation rate is the
percentage of the working age population
that is in labor force.
◦The working age population is 204,020,000
◦Labor force is 137,169,000
◦Therefore labor force participation rate
equals: 137,169,000/204,020,000 X 100 =
67. 2 %

15. Unemployment and Employment
Solution: c. Employment to population
ratio
The employment to population ratio is the
percentage of people of working age who
are employed
Therefore, the employment to population
ratio is equal to the number of employed
people divided by total working age
population and divided by 100
Thus: 130,777,000/204,020,000X100 =
64. 1 %

16. Employment, Unemployment,
and the Labor Force: 1960–
1996

17. Employment and Unemployment
Aggregate Hours
◦The indicators previously studied are
useful signs of the health of the economy.
◦However, they do not measure the
productivity of labor.
◦Aggregate hours are the total number of
hours worked by all the people employed,
both full time and part time, during a year

18. Aggregate Hours: 1960–1998

19. Unemployment and Employment
People become unemployed if they:
1) Lose their jobs and search for
another job.
2) Leave their jobs and search for
another job.
3) Enter or reenter the labor force to
search for a job.

20. Unemployment and Employment
Job losers are people who are laid off/
fired either permanently or temporarily.
◦Biggest source of unemployment
◦Numbers fluctuate considerably

21. Unemployment and Employment
Job leavers are people who voluntarily
quit their jobs.
◦Smallest and most stable source of
unemployment

22. Unemployment and Employment
Entrants are people who are entering
the labor force.
Reentrants are people who have
previously withdrawn from the labor
force.
◦Reentrants/entrants are a large
component of the unemployed.
◦Numbers fluctuate mildly

23. Labor Market Flows

24. Unemployment by Reasons

25. Types of Unemployment
There are three types of unemployment:
1) Frictional Unemployment
2) Structural Unemployment
3) Cyclical Unemployment

26. Types of Unemployment
Frictional Unemployment
◦Arises from normal labor turnover —
people entering and leaving the labor
force and the creation and destruction of
jobs
◦Influenced by unemployment benefits

27. Types of Unemployment
Structural Unemployment
◦Arises when changes in technology or
international competition change the skills
needed to perform jobs or change the
locations of jobs
◦Typically lasts longer than frictional

28. Types of Unemployment
Cyclical Unemployment
◦Arises from the fluctuations of the
business cycle
◦Increases during a recession and
decreases during an expansion
◦The natural rate of unemployment occurs
when there is no cyclical unemployment

29. Natural rate of Unemployment
and Full Employment
Natural Rate of Unemployment exists
when there is no cyclical unemployment:
all unemployment is frictional and
structural
Full employment exists when the
unemployment rate equals the natural
rate of unemployment.
◦It fluctuates periodically
◦Economists disagree about the size of the
natural rate and the extent to which it
fluctuates

30. Relationship between
employment, unemployment,
and real GDP

31. Unemployment and Real GDP

32. Unemployment and Real GDP
As real GDP fluctuates around potential GDP,
the unemployment rate fluctuates around the
natural rate of unemployment.
As potential GDP keeps growing over the time
(upward sloping curve), natural rate of
unemployment keeps decreasing (downward
sloping curve)
This shows the negative relationship between
the growth of potential GDP and natural rate of
unemployment

33. QUESTIONS AND ANSWERS

34. THANKS