Unemployment

 Unemployment 

The failure to use available resources, particularly labor, to produce desired goods and services

Unemployment rate: 4-5%

• full employment or natural rate of unemployment (NRU)

Labor force: 

• above 16 years of age
• able & willing to work 

Not in labor force:

• military
• jail/prison
• mental institutions
• retirees 
• under 16
• homemakers
• people not looking for a job

How to calculate unemployment rate:

Number of unemployed people/ the number of employed +the number of unemployed *100

Types of unemployment 

• frictional: temporarily unemployed/ in between jobs (possibly a high school or college graduate looking for a job, left Jon for a better position)
• structural: workers do not have transferable skills and these jobs will never come back (vcr repair)
• seasonal: due to time of the year and nature of the job (bus drivers, Santa Claus impersonator, lifeguards, construction) 
• cyclical: results from economic downturns/ as demand for goods and services fall, demand for labor and workers also fall (recession)

*Full employment means no cyclical unemployment 

GDP gap

The amount by which actual GDP falls short of potential GDP 

Okun's Law

For every 1% that actual unemployment rate exceeds the natural rate of unemployment, a GDP gap of about 2% occurs 

• In Mexico the unemployment rate is  7.4%. The natural rate of unemployment in Mexico is 6%, find the GDP gap.

Rule of 70

Used to determine how many years it takes for a value to double given a particular annual growth rate.

• If you put $20,000 in the bank, and it earned a yearly interest rate of 7%, then how many years will it take for you income to double ? 
• 70/ interest rate 
• 70/7=10 years