Week 5 economics

• Unemployment rate


  Percentage of people in the labour force who are unemployed
• Labour force participation rate

  Percentage of the working-age population who are members of the labour force
• Broader measures of unemployment

  • Marginal attachment
  • Underemployment
• Marginal attachment


  A person who does not have a job and either has looked for one but is not immediately available for work or is available for work but has stopped looking for a job because of repeated failure to find one
• Discouraged job seeker


  A person who is available for work but has stopped looking for a job because of repeated failure to find one
• Underemployed workers


  People with part-time jobs who are unable to find full-time work because of unfavourable business conditions or seasonal decreases in the availability of full-time work or are unable to work longer hours
• The underemployment rate usually exceeds the unemployment rate, so the labour force underutilisation rate is more than double the unemployment rate
• Unemployment rate


  • Increases in recessions and decreases in expansions
• The official measure of unemployment does not include the underemployed and those with marginal attachment to the labour force
• The ABS estimates the labour force underemployment and underutilisation rates to capture the underused labour
• During recessions


  All three measures (unemployment rate, underemployment rate, underutilisation rate) increase
• Voluntary part-time workers


  People who want part-time jobs
• Voluntary part-time employment is much larger than underemployment
• Voluntary part-time employment trends upward and is unrelated to the business cycle
• Underemployment increased during recessions, but it doesn't fall after the recession ends
• Frictional unemployment


  Unemployment that arises from normal labour turnover—from people entering and leaving the labour force and from the ongoing creation and destruction of jobs
• Structural unemployment


  Unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
• Cyclical unemployment


  Fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion
• Natural unemployment


  Unemployment that arises from frictions and structural change when there is no cyclical unemployment—when all the unemployment is frictional and structural
• Full employment


  When the unemployment rate equals the natural unemployment rate
• At full employment, all the unemployment is frictional or structural—and not cyclical unemployment
• Potential GDP


  The value of real GDP when the economy is at full employment
• When the unemployment rate is above the natural rate


  Real GDP is below potential GDP
• When the unemployment rate is below the natural unemployment rate

  Real GDP is above potential GDP
• Output gap


  Real GDP minus potential GDP, expressed as a percentage of potential GDP
• When the unemployment rate exceeds the natural rate, the output gap is negative