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Chap 5

The document defines unemployment and methods for computing unemployment rates. It classifies unemployment into natural and cyclical types and lists categories of natural unemployment including frictional, structural, and seasonal. The document also discusses the impacts of unemployment and potential solutions to reduce it.

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25 views

Chap 5

The document defines unemployment and methods for computing unemployment rates. It classifies unemployment into natural and cyclical types and lists categories of natural unemployment including frictional, structural, and seasonal. The document also discusses the impacts of unemployment and potential solutions to reduce it.

Uploaded by

nbh167705
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 5 Unemployment

Mentor Pham Xuan Truong


[email protected]
Content
I Definitions and computing method
II Unemployment classification
III Impacts of unemployment on the economy
IV Solutions to reduce unemployment
I Definitions and computing method
Definitions
Employed is the People who work
Unemployed is the People who are Not employed but
Want to work and is Looking for a job
Labor force = Number of employed + Number of
unemployed
Not in the labor force (non-labor force): Not employed
Not unemployed. It includes children, elders, students,
disable…
Adult population is the proportion of population that is
within working – age (includes labor force and a part of
non – labor force)
I Definitions and computing method
Labor structure

Male Female

Elder
65 60

Employed (E)
Adult Labor force
population
Unemployed (U)
(working – age
population) Non in labor force
(housewives,
students, disable…)
15 15
Children
0 0
I Definitions and computing method
Computing method
Unemployment rate: Percentage of labor force that is
unemployed

Number of unemployed
Unemployme nt rate   100
Labor force
Labor-force participation rate: Percentage of adult
population that is in the labor force

Labor force
Labor - force participat ion rate   100
Adult population

6
I Definitions and computing method
Computing method
Math problems
1. Population of Vietnam is 90 million people. The employed
is 43 million people, the unemployed is 1.5 million people.
There are 4.5 million people in working – age but out of
labor force. Calculate unemployment rate, labor
participation rate?
2. FTU city has adult population of 100 thousand people.
Labor force participation is 90% and the employed are 70
thousand people. Calculate unemployment rate?
3. The employed is greater than the unemployed 70 million
people. Adult population is 90 million people. Labor
participation rate is 25 time higher than unemployment rate.
Calculate unemployment rate?
II Unemployment classification
There are two fundamental types of unemployment
Natural rate of unemployment
Normal rate of unemployment that exists even at the
equilibrium of labor market by objective reasons
Around which the total unemployment rate fluctuates
Existence in the long run
Cyclical unemployment
Deviation of actual unemployment from its natural rate
Non-existence in the long run when the economy adjusts
itself
Unemployment rate of the US since 1960

This graph uses annual data on the U.S. unemployment rate to show the
percentage of the labor force without a job. The natural rate of unemployment is the
normal level of unemployment around which the unemployment rate fluctuates
II Unemployment classification
1 Natural rate of unemployment
There are four categories of natural unemployment
+ Frictional unemployment: Results because it takes time for
workers to search for the jobs that best suit their tastes and skills
E.g. The graduate who just leave university is finding a job
+ Structural unemployment: occurs when a labor market is
unable to provide jobs for everyone who wants one because
there is a mismatch between the skills of the unemployed
workers and the skills needed for the available jobs
E.g. Farmers who were reclaimed land try to be workers
+ Seasonal unemployment: occurs at seasonal jobs which
require working in certain moments of a year
E.g. Employee in water park in winter
II Unemployment classification
1 Natural rate of unemployment
+ Classical unemployment: occurs when real wages for a
job are set above the market-clearing level, causing the
number of job-seekers to exceed the number of vacancies.
E.g. Unskilled worker who only graduates from high school
Reasons for classical unemployment
- Minimum wage law
- Efficiency wages
- Labor unions
II Unemployment classification
1 Natural rate of unemployment
+ Classical unemployment
II Unemployment classification
2 Cyclical rate of unemployment
Cyclical, deficient-demand,
or Keynesian unemployment, occurs when there is not
enough aggregate demand in the economy to provide
jobs for everyone who wants to work. Demand for most
goods and services falls, less production is needed and
consequently fewer workers are needed, wages are sticky
and do not fall to meet the equilibrium level, and mass
unemployment results
II Unemployment classification
2 Cyclical rate of unemployment

Sticky wage
II Unemployment classification
All types of unemployment illustrated in labor market model

At W*/P: AB cyclical unemployment, BC natural


unemployment (without classical unemployment)
At W1/P: DE cyclical unemployment, EG natural
unemployment includes EF classical unemployment and FG
frictional, structural, seasonal unemployment
III Impacts of unemployment on the
economy
1 Negative impacts
- Waste of labors not used to produce goods and services
→ output decline – supply side (Okun’s law)
- Demand for goods and services declines → production
decrease – demand side
- Burden of society in supporting unemployed →
ineffective resource allocation
- Unemployment time mitigates labor’s skill →
productivity decrease
- Unstable mentality of individuals who can not find a job
and related person → unstable for the whole society
III Impacts of unemployment on the
economy
2 Positive impact
- Job seekers have enough time to find appropriate job
- Labors who just lost their jobs have time to relax
- Someone has time to acquire necessary skills to do a
new job
IV Solutions to reduce unemployment
1Government – run employment agencies: reduce time for
unemployed to find jobs
2 Public training programs: equip quickly necessary skill for
unemployed to find jobs
3 Labor movement facilitation: reduce seasonal
unemployment
4 Income tax reduction: incentivize more economic activities
5 Unemployment insurance cut: encourage unemployed to
find jobs quickly
6 Demand side stimulus: promote manufacture, thereby
creating more jobs
Key concepts
- Unemployment
- Labor force
- Unemployment rate, labor-force participation rate
- Natural rate of unemployment
- Cyclical unemployment
- Frictional unemployment, structural unemployment,
seasonal unemployment, classical unemployment

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