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Unemployment & Business Cycle
Business CycleCauses
1. Irregularities of Investment
2. Change in productivity3. Changes in total
spending
• Durable goods are most susceptible to affects of business cycle. Why?
GDP and Business Cycle
Unemployment• Labor Force
▫ People who are able and willing to work
▫ About 50% of population
• Total U.S. population split into 4 groups1.Under 16 or
institutionalized2.“Not in labor force”
Discouraged workers College students,
homemakers, retirees
3.Employed Work at least 1 hr in 2 weeks
4.Unemployed Not worked in past 2wks-12
months
Under 16/ institutionalized74.7 mil
“Not in labor force”71.4 mil
Employed
134.2 mil
Unemployed 8.3 mil
Tota
l Pop
ula
tion
: 288.6
Mil
lion
Current Unemployment Data•Unemployment Rate (u%)= 9% (bls.gov),
9.8% (gallup poll)•Not in Labor Force: +3%
▫Discouraged workers: +50%
Types of Unemployment
1. Frictional▫“Between jobs”▫Voluntary move or
fired/laid off▫Changes from
month-month are inevitable
•Frictional—market does not operate perfectly
Types. . . 2. Seasonal
▫ Unemployment based on Seasons--Santa during July, Alaskan golfers during the winter, etc.
3. Structural▫ Lack of skills or decline
in industry i.e. High School drop-
out, typewriter repairman
Think “Creative Destruction”
▫ Geographical Migration of industry Overseas, urban to
suburban
Types. . . 4. Cyclical
▫ Higher unemployment from decline in spending
▫ Recessionary phase▫ Most serious problem
Full Employment
• No Cyclical Unemployment
• Level of unemployment when economy is at full potential
• Best known as: Natural Rate of Unemployment (NRU)
• Approx. 4-5%
Why Unemployment is badOkun’s Law: (Arthur
Okun)▫ Every 1% increase in
u% causes 2% decrease in GDPr
UR PracticeDetermine which of the following are unemployed.
• If unemployed, then determine the type of unemployment. • If not unemployed, then write down ‘not in labor force.’1. Arvod cannot find work as a mall Santa in January.
2. Beulah leaves her job to become a stay at home mom.
3. Grover is laid off of work when the economy experiences a recession.
4. Tuabulu dropped out of his G.E.D. program and has difficulty finding work.
5. Boris, the human calculator, is replaced by the TI-83.
6. Nimrod leaves his job as a teacher to look for work in the fast food industry.
7. Queen Oli-go-poly graduates from college and begins looking for work.
8. Kimple has difficulty finding a job as a life guard after Labor Day.
9. Uncle Flemjik likes to sleep on the couch all day and at night play Halo 3. He
has difficulty finding a girlfriend.
10. Nebulus Artaxerxes Johnson cannot find work in the typewriter repair industry.