Labor force
Those who have jobs or are seeking a job, are at least 16 years old and are not serving in the military.
Labor-force participation rate
= Labor force / population age 16 or above
Employment-to-population ratio
=% of working-age population who are employed
Unemployed person
The person who are actively seeking employment, or waiting to begin or return to a job.
Note:
· Unemployment is higher during a recession and usually does not pick up until after the economy is coming out of a recession; it is usually regarded as a "lagging indicator".
Key labor Market Indicators
Rate of unemployment =No. of unemployed / no. in labor force
Problems with measuring unemployment: - Part-time workers {counting them as employed=>understates unemployment rate}
- Discouraged workers {not counted as unemployed=> understates unemployment}
- Unserious benefit registrants {opportunists who are not really looking towork =>overstates unemployment}
- Underground workers {not counted as employed =>overstates unemployment}.
Aggregate hours
It caters the issue of part-timers and thus is a better measure of the quantity of labor. It increases with GDP.
Aggregate hours =Total hours worked in a year by all employed people
Real wage rate
Money wages adjusted the changes in price level
Real wage rate =Nominal wages / GDP deflator.
Full employment
Full employment does not imply zero unemployment. A dynamic economy will always have some unemployment, taking into account structural and frictional factors.
Types of unemployment:
Frictional Unemployment
- Workers cannot be immediately matched with existing jobs due to imperfect information and job search is done by both employer and employee. Workers who are voluntarily between jobs because of looking for better jobs or moving to different geographical location.
Structural Unemployment
- Economic restructuring throws people out of jobs, i.e. some job skills are not in demand.
Cyclical Unemployment
- This occurs due to downturns in overall business activity.
The natural rate of unemployment
It is the rate of unemployment that is expected when an economy is operating at full capacity (cylical unemployment is zero) Unemployment occurs naturally due to imperfect information and job shopping.
