Employment & unemployment

  1. Unemployment Definition
    • A person actively looking for person
    • Unable to find Work
    • Why is unemployment a problem?
    • Lost incomes and human capital
  2. Population & Labor Force
    • Working-age Population
    • Labor force
    • What counts as unemployed
  3. Labor Market Indicators
    • Unemployment Rate
    • Employment-to-Population Ratio
    • Labor Force Participation Rate
Topic Notes

Unemployment Definitions

Unemployment: occurs when a person who is actively looking for employment is unable to find work.

Note: Unemployment is usually used to measure the health of the economy.

There are two reasons why unemployment is a problem
  1. Lost incomes and production: Losing a job means losing income as well as losing production. When there is lost production, there is a decrease in consumption and investments in capital. Overall, this leads to a lower standard of living in both the present and future.

  2. Lost human capital: When a person’s unemployment is lengthened, it permanently damages a person’s future job.

    Example: A doctor becomes unemployed and becomes a waiter. After 10 years, he realizes he won’t be able to find a job as a doctor because he cannot compete with new doctor graduates.

Population & Labor Force

Working-Age Population: the total number of people aged 16 years and over who are not in prison, hospital or some other form of institutional care.

Labor Force: The sum of the employed and unemployed.

Note: If you are neither employed or unemployed, then you are not in the labor force.

To be unemployed, you must fulfill one of the following categories:
  1. Has no work, but has made efforts to find a job in the last four weeks
  2. Waiting to be called back from a job from which he/she was previously laid off.
  3. Starting a job within 30 days

Labor Market Indicators

There are three labor market indicators
  1. The Unemployment Rate: the extent in which people who want jobs but cannot find one. To calculate this, we use the following formula

    Unemployment Rate = Numberβ€…β€Šofβ€…β€Špeopleβ€…β€ŠunemployedLaborβ€…β€ŠForceβ€…β€ŠΓ—100\frac{Number\; of\;people\;unemployed} {Labor\;Force} \; \times 100

  2. Employment-to-Population Ratio:is the percentage of people of working age who has jobs. To calculate this, we use the following formula

    Employment to Population Ratio = Numberβ€…β€Šofβ€…β€Špeopleβ€…β€ŠemployedWorkingβˆ’β€…β€ŠAgeβ€…β€ŠPopulationβ€…β€ŠΓ—100\frac{Number\; of\;people\;employed} {Working-\;Age\;Population} \; \times 100

  3. Labor Force Participation Rate:he percentage of the working-age population who are members of the labor force. To calculate this, we use the following formula

    Labor Force Participation Rate = Laborβ€…β€ŠForceWorkingβˆ’β€…β€ŠAgeβ€…β€ŠPopulationβ€…β€ŠΓ—100\frac{Labor\; Force} {Working-\;Age\;Population} \; \times 100