Académique Documents
Professionnel Documents
Culture Documents
Measuring Unemployment
Bureau of Labor Statistics conducts an unemployment survey of households.
Ask each person if they are: Employed, Unemployed, Not in Labor Force.
Definitions:
Labor Force = # Employed + # Unemployed
Unemployment rate = # Unemployed/Labor Force
Participation Rate = Labor Force/Adult Population
Natural rate of unemployment is the rate of unemployment in the Long Run.
Cyclical Unemployment is deviation of actual unemployment rate from the
Natural rate.
2
Problems in Measurement
Difficult to measure unemployment.
Movements into and out of labor force very common and often difficult to
interpret.
May claim unemployed although not actually looking for work.
Discouraged workers given up looking for work.
May be forced to work part-time instead of full-time..
Most unemployment episodes last for short periods but at any given time
most observed unemployment is long term.
3
Natural Rate of Unemployment
Goal is to identify causes of unemployment.
We assume labor is fully employed in LR of our models.
BUT all free market economies experience unemployment.
Unemployment rate in the real economy fluctuates about LR trend.
That Long Run level is called the Natural Rate of Unemployment.
Where determines the level of the Natrual Rate of Unemployment for an
economy?
Chapter 5-1
Job Loss and Job Finding
Job Separation (s)
Employed, E Unemployed, U
Efficiency wage theory states firms operate more efficiently paying wages
above equilibrium level, hence less employment.
Worker health: healthier workers more productive.
Worker Turnover: costly to train new workers.
Worker Effort: provide incentives for productivity.
Worker Quality: attract more productive workers.
Problems of asymmetric information.
Adverse selection or Signaling problems.
Moral Hazard or Principal/Agent Problems.