Macroeconomics ECON202
Guided notes
Chapter 7 Unemployment
Big Questions to answer
A. What are the major reasons for unemployment?
A. There are three types of unemployment: structural unemployment, frictional
unemployment, and cyclical unemployment
B. Structural unemployment is caused by changes in the structure of the economy that make
some jobs obsolete
C. Frictional unemployment is affected by information availability and government policies
D. Cyclical unemployment is caused by recessionary conditions that eliminate jobs during a
downturn in the business cycle
B. What can we learn from the employment data?
A. The unemployment rate, one of the most reliable indicators of an economy’s health reflects
the portion of the labor force that is not working and is unsuccessfully searching for a job
B. The labor force participation rate reflects the portion of the work-eligible population that is
working or searching for work
1
, C. Unemployment data enable economists to examine economic trends and identify where the
labor market conditions are particularly strong or weak
D. Unemployment data also help to evaluate current condition sin a long-run historical
perspective
A. Example: the case study in this chapter helps us view the recent Great Recession
in the context of earlier economic downturns
Flow of Chapter 7
1. Three kinds of unemployment
• Structural unemployment
• Frictional unemployment
• Cyclical unemployment
2. Calculate unemployment rate
3. Labor force participation rate
Motivating example:
Should we aim for 0 unemployment rate?
Is unemployment absolutely bad?
A. What are the major reasons for unemployment?
• After GDP —> the unemployment rate is the second most important indicator of economic health
2
, Unemployment:
- workers who are not currently employed
- workers are searching for jobs but have not yet found one.
• Unemployment: occurs when a worker who is not currently employed is searching for a job without
success
• People leave their jobs for many reasons:
• Voluntarily: returning to school, taking another job, or deciding to leave the workforce to care
for children
• Involuntarily: fired for poor performance or let go because a company is downsizing
• When macroeconomists consider unemployment —> they explicitly look at workers who seek
employment but are unable to secure it
• The Unemployment Rate (u): is the percentage of the labor force that is unemployed
• As the unemployment rate climbs —> people are more likely to be disappointed in their pursuit
of a job
• The shaded regions on unemployment graphs are periods of recessions, unemployment
usually spikes during these times
• Three types of unemployment: structural, frictional, and cyclical
• Structural and frictional unemployment occur even when the economy is healthy and growing
• Because of this, they are called natural unemployment
Three reasons for unemployment
- Structural unemployment
3
Guided notes
Chapter 7 Unemployment
Big Questions to answer
A. What are the major reasons for unemployment?
A. There are three types of unemployment: structural unemployment, frictional
unemployment, and cyclical unemployment
B. Structural unemployment is caused by changes in the structure of the economy that make
some jobs obsolete
C. Frictional unemployment is affected by information availability and government policies
D. Cyclical unemployment is caused by recessionary conditions that eliminate jobs during a
downturn in the business cycle
B. What can we learn from the employment data?
A. The unemployment rate, one of the most reliable indicators of an economy’s health reflects
the portion of the labor force that is not working and is unsuccessfully searching for a job
B. The labor force participation rate reflects the portion of the work-eligible population that is
working or searching for work
1
, C. Unemployment data enable economists to examine economic trends and identify where the
labor market conditions are particularly strong or weak
D. Unemployment data also help to evaluate current condition sin a long-run historical
perspective
A. Example: the case study in this chapter helps us view the recent Great Recession
in the context of earlier economic downturns
Flow of Chapter 7
1. Three kinds of unemployment
• Structural unemployment
• Frictional unemployment
• Cyclical unemployment
2. Calculate unemployment rate
3. Labor force participation rate
Motivating example:
Should we aim for 0 unemployment rate?
Is unemployment absolutely bad?
A. What are the major reasons for unemployment?
• After GDP —> the unemployment rate is the second most important indicator of economic health
2
, Unemployment:
- workers who are not currently employed
- workers are searching for jobs but have not yet found one.
• Unemployment: occurs when a worker who is not currently employed is searching for a job without
success
• People leave their jobs for many reasons:
• Voluntarily: returning to school, taking another job, or deciding to leave the workforce to care
for children
• Involuntarily: fired for poor performance or let go because a company is downsizing
• When macroeconomists consider unemployment —> they explicitly look at workers who seek
employment but are unable to secure it
• The Unemployment Rate (u): is the percentage of the labor force that is unemployed
• As the unemployment rate climbs —> people are more likely to be disappointed in their pursuit
of a job
• The shaded regions on unemployment graphs are periods of recessions, unemployment
usually spikes during these times
• Three types of unemployment: structural, frictional, and cyclical
• Structural and frictional unemployment occur even when the economy is healthy and growing
• Because of this, they are called natural unemployment
Three reasons for unemployment
- Structural unemployment
3
