Unemployment: Measuring Unemployment - YouTube

Good morning. Today we're going to be talking about unemployment, based on Chapter 15.

Part of what we need to be able to do is measure unemployment,

so we'll be talking about the unemployment rate.

The unemployment rate is calculated as the number of unemployed, divided by the labor force, times 100.

It's a simple equation, but it's actually a lot more complicated once we get into some of the details.

The second thing that we're interested in measuring is the labor force participation rate.

What part or portion of the labor force is actually participating in the employment?

This value is calculated by taking the labor force, and dividing it by the adult population, times 100.

Labor force, divided by adult population, times 100.

The other concept that we need to think about is the idea of a natural unemployment rate.

The natural unemployment rate was an idea

that that was brought to us by Milton Friedman, a Nobel prize-winning economist.

Milton Friedman said there are always going to be some people who are unemployed.

These people might be people who are laid off for cause, because they did something improper.

Or they might be people who just don't like their employer, and want to work somewhere else.

Or they might be somebody who's just decided that they want to leave the labor force to do something else.

So there will always be some number of unemployed,

and he refers to that as the natural rate of unemployment.

There are four major causes of involuntary unemployment.

So, aside from people who decide they want to leave the job force,

and they want to do that voluntarily, we have these four areas.

The first area is something we call cyclical unemployment.

You can probably guess what this is, because we've talked about business cycles.

Cyclical unemployment are jobs that are lost as the result of business cycles.

As we enter into a business cycle, people are going to get laid off. We've talked about this before.

Those people that are laid off are part of cyclical unemployment.

The second category is referred to as frictional unemployment.

Frictional unemployment is unemployment that is a result of shifts in technology.

When there are changes in technology, sometimes older jobs are displaced.

We all know about computers, we all have computers.

But what most of you don't know, probably, is that that used to be a job.

There used be people who had a business card that said, "computer" on it.

"Hello, what do you do for a living?" "I'm a computer."

That would seem very silly today, but of course at that time, that was a prestigious job.

There are many jobs that are like that, that have been replaced by by technology.

The third area of unemployment is what we call structural unemployment.

This would consist of unemployment that results from the existence of unions, and also minimum wage laws,

and other laws by the government, that result in people losing their jobs.

The final area I want to talk about is not in your textbook. It refers to what I call subsidized unemployment.

This is probably the largest category of unemployment,

in that this is unemployment that is financed by the government.

This would include people on welfare, people on Social Security,

and people who are receiving unemployment benefits.

In other words, these are people who aren't working

because the government is paying them money, whether justified or not, to not work.

The government keeps track of unemployment with six different statistics.

I don't expect you to learn all of these statistics, nor to memorize them.

I'll be honest; I didn't do that myself,

but I think you should be aware that there are six, and they're referred to as u1 through u6.

I'll tell you about them, but you should know that u3 is the official unemployment rate.

U1 is the smallest number of people who are unemployed.

This would be people who are unemployed for 15 weeks or longer,

so you're not counted as unemployed until you've been out of a job for at least 15 weeks,

and only then if you're looking for a job.

The second category would be u2.

Each category includes the category before, so u2 would include u1,

plus job losers who are in temporary jobs, who then lose those temporary jobs.

So if you've been unemployed for 15 weeks, you get a temporary job, and then you lose that temporary job,

then you would be considered immediately as unemployed.

U3 is the official unemployment number. That includes people who are unemployed from week one.

U4 includes u3, but it includes discouraged job seekers,

so these are people who have stopped looking for a job, because they become discouraged.

They normally wouldn't be counted in the official unemployment number, but in u4 they're included.

U5 includes u4, but adds people who are marginally attached to the labor force.

These are people who want to work, but for some other reason than discouragement, are not looking for a job.

And then u6 would be the largest number of unemployed.

This is, I think, typically around 7% when the economy is doing well.

U6 includes u5, plus anybody who is part-time employed, who would like to be a full-time employee.

It also would include people who are students, but looking for jobs,

and people who are disabled but would like to have a job.