UNEMPLOYMENT 1 2 3 4 What is unemployment

UNEMPLOYMENT 1. 2. 3. 4. What is unemployment? Reasons of unemployment and its classifications Unemployment and economic development Government policy against unemployment

Unemployment or joblessness is the situation of actively looking for employment but not being currently employed. n The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate. 6% of the world's workforce were without a job in 2012. Though many people care about the number of unemployed individuals, economists typically focus on the unemployment rate. This corrects for the normal increase in the number of people employed due to increases in population and increases in the labor force relative to the population. The unemployment rate is expressed as a percentage, and is calculated as follows: n

Unemployment n Unemployment is defined by the Bureau of Labor Statistics as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and were waiting to be called back to that job are included in the unemployment

Unemployment Lack of workforce used in producing GDP is a reason of deterioration of macroeconomic situation, so as households’ income, decrease in savings, investments and real GDP

Reasons of unemployment Classics market mechanisms are reliable means of resolving unemployment. Argue against interventions imposed on the labor market from the outside, such as unionization, bureaucratic work rules, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers Keynesians emphasize the cyclical nature of unemployment and recommends government interventions in the economy that it claims will reduce unemployment during recessions. Focus on recurrent shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Suggest the raise in government spending to increase the AD and push up the production

Reasons of unemployment Marxists is reasoned with the unwilling of capitalists to pay adequate wage to workers in order to provide the additional supply of labor force and raise their selves’ profit. “It is in the very nature of the capitalist mode of production to overwork some workers while keeping the rest as a reserve army of unemployed paupers” Modern view is a result of labor market imperfection. The seek for job is reasoned by natural factors (personal preferences or needs, location, professional skills, specialization) and economic situation in the country (economic growth or recession)

Factors of unemployment n n n Automation of production process => robots make people useless The Employed try to overwork => people afraid of being unemployed increase their productivity Noncompetitive factor of wage growth (government’ policy to raise wages and to enact law about minimal wage rate; the same policy of trade unions) Excess population on the planet Earth Low level of effective demand

Unemployment rate Population = Civilian noninstitutional population + Active duty military + Institutional population Civilian noninstitutional population = Labor force + Not in labor force Labor force = Employed + Unemployed Not in labor force = These following three groups: n People who would like work, but haven't looked for it in the last month. They include the "marginally attached, " who did look in the past year. They had school, ill health, or transportation problems that kept them from looking in the past month. Others are "discouraged workers. " They don't believe there any jobs. These people are included in the Real Unemployment Rate. n The other groups aren't looking for work. They include students, homemakers and retired people. n Anyone under 16 is not included in the labor force, even if they are working.

Exercise 1 Labor force in the country in 2009 was 72, 8 million of people. The employed were 65, 0 million of people. Population — 144, 9 million of people. Unemployed? Unemployment rate?

Solution Unemployed U = L – E =72, 8 - 65, 0 = 7, 8 million of people. Unemployment rate = Unemployed / Labor force = 7, 8 / 72, 8 = 0, 1 (10%)

Most important types of unemployment: full employment

natural unemployment rate the ideal unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. Also, it includes: -Frictional unemployment -Structural unemployment

Cyclical unemployment and its influence on economic growth n n 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. Its name is derived from the frequent shifts in the business cycle although unemployment can also be persistent as occurred during the Great Depression of the 1930 s. With cyclical unemployment, the number of unemployed workers exceeds the number of job vacancies, so that even if full employment were attained and all open jobs were filled, some workers would still remain unemployed. Some associate cyclical unemployment with frictional unemployment because the factors that cause the friction are partially caused by cyclical variables. For example, a surprise decrease in the money supply may shock rational economic factors and suddenly inhibit aggregate demand.

Okun’s law When the fact unemployment rate is higher than natural unemployment rate at 1% (=cyclic unemployment), the fall in real GDP is 2, 5% Arthur Okun (1928 -1980 гг. )

Exercise 2 Unemployment rate (U) is 7%, real GDP (Y) - 820 billion €. Natural Unemployment rate (U*) is 5%. What is potential GDP (Y*), if Okun coefficient for that country (b) is 3

Задача 1 Real GDP (Y) - 820 billion €. By Okun’s law, cyclic unemployment at 1% leads to real GDP lag for the multiplied percentage. If b = 3: 1. Cyclic unemployment Uc = U – U*= 7% - 5% = 2%, the gap between GDP potential (Y*) and GDP real (Y) is 2%х3=6% 2. Y* = Yx 100 = 820 х100 = 872, 3 billion €. 94 94

Average unemployment rate, 2009

Data for unemployment rate in some countries, 2017 Country, range U, % Male, % Female, % Catar, 1 0, 2 0, 1 0, 7 Germany, 44 3, 7 4 3, 4 USA, 57 4, 4 4, 5 4, 4 China, 65 4, 7 5 4, 2 Russia, 79 5, 2 5, 4 4, 9 Turkey, 148 11, 3 9, 8 14, 4 Palestine, 188 27, 9 27 31 World 5, 6 (192, 7 million people)

Lorenz curve and coefficient Gini The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an indicator of economic development in a country. The Gini Coefficient is equal to the area between the actual income distribution curve and the line of perfect income equality, scaled to a number between 0 and 100.

Unemployment results for the country Economic Social

Economic results 1. 2. 3. 4. Reduce in GDP Reduce in living level of population Unequal distribution of unemployment problems among different classes and groups in the society Growth in Govt spending for the unemployed (compensations)

Social results 1. 2. 3. 4. 5. 6. Reduce in qualification (professional skills) Crush in self - esteem Crash in morality Increase in physical and psychics illnesses cases Increase in criminal accidents level Social and political riots (=Chaos)

Controlling or reducing unemployment Mainstream economic discussions of full employment since the 1970 s suggest that attempts to reduce the level of unemployment below the natural rate of unemployment will fail, resulting only in less output and more inflation

Regulation of level & length of unemployment 1. 2. 3. 4. Information about vacancies Courses to change specialties for structural unemployed Small business support Widening of state sector production

Social care of unemployed people 1. 2. 3. Transfers (compensations in money and natural units) Income formation system (social insurance, long run credits for low interest rates, taxes policy) Enacting law about minimal wage rate

Test Natural unemployment rate is 4%. Unemployment is 12%. What is the gap between potential GDP and real GDP? а) 16% б) 24% в) 20% г) 12%. 5. Labor force of the country is: а) all employed б) all employed and all unemployed в) civilian noninstitutional population г) the whole population. 4.