High unemployment rate is one of the results of an economic downturn. It is defined as the percentage of the labor force which is not employed. Population is divided into 3 groups: 1 those under age 16 or institutionalized, 2 those not in the labor force, 3 the labor force which includes those age 16 and over who are willing and able to work.
Part-time workers and discouraged workers who want a job, but are not actively seeking one, are not in the labor force. So they are not included in the unemployment rate. As for the official U. With the economy still strong , just how low could it go? And could the unemployment rate ever get to zero? Many people may think that they know what the U. The official definition , however, is far from simple. To be considered unemployed, a person must pass three tests.
First, the person has to be immediately available to work. Searching for a job that starts weeks or months from now does not count. Second, to be unemployed someone cannot be working, even a tiny bit. Driving for a car company like Uber or Lyft while looking for a job means a person is not classified as unemployed but instead is counted as working.
Lastly, a person has to be actively searching for a job. Active searching means doing something that could result in an employer contacting a job seeker. Economists divide the reasons people are unemployed into five reasons: cyclical, structural, seasonal, frictional and institutional. For the unemployment rate to become zero, all five would have to disappear. Cyclical unemployment happens because the economy goes through periodic cycles of booms and busts.
During the Great Recession from to , businesses needed far fewer workers because they were selling less. With the economy expanding today, businesses now need more workers, so currently almost no one is unemployed for this reason. The economy is constantly evolving and new types of jobs are being created, while old jobs are destroyed. Decades ago when I was in high school, some of my friends took stenography classes to get jobs as secretaries. Stenography was a type of shorthand used so bosses could dictate letters, which were typed up later.
Let me talk about what full employment is all about. Then, I also discuss structural, cyclical, and frictional unemployment. As I mentioned earlier, at the natural rate of unemployment, only cyclical unemployment is zero percent. In contrast, structural and frictional unemployment still exists. Full employment occurs when the economy uses all available resources, including labor. In a graph, it occurs when the short-run equilibrium the intersection of the short-run aggregate supply curve and the aggregate demand curve is right on the long-run aggregate supply curve.
In these conditions, everyone who is willing to work at a decent wage level gets a job. Those who are actively looking for work find suitable jobs. Unemployment is at its natural rate, which is equal to the structural plus frictional unemployment. Structural unemployment occurs due to fundamental problems in the economy. Structural changes in the economy make some skills obsolete and irrelevant, leaving previously employed people out of work. When they do not adapt and acquire new skills demanded by the market, they are unemployed forever.
For example, when industrialization was underway, the contribution of the agricultural sector to labor absorption decreased. In contrast, the manufacturing and service sectors grew.
Farmworkers can lose their jobs. Some workers do not have the skills necessary to work in the manufacturing or service sector.
They are also unable to acquire new skills because problems such as education and retraining programs are unavailable. Finally, they can become structurally unemployed. Frictional unemployment arises because of the time lag to find and fill suitable job vacancies.
For example, you might leave your current job for reasons such as seeking a higher position, being fired, or the company going bankrupt. Of course, you will need time to work in a new place. You must look for related job vacancies and follow the recruitment process before you can become effective.
As long as you are waiting to start a new job, you fall into the category of frictional unemployment. In general, labor market imperfections give rise to frictional unemployment.
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