Unemployment

• 1. Structural
• 2. Frictional
• 3. Seasonal

• 1. Structural:
• ◦ result of technological changes
• ◦ changing patterns of demand that determine growing and declining industries
• ◦ changes in geographical location of jobs

• 2. Frictional:
• ◦ occurs when workers are between jobs
• ◦ workers have skills that are transferrable from one industry to another

(Usually short term)

• 2. Seasonal:
• ◦ occurs when demand for labor in certain industries changes on a seasonal basis because of variations in needs

• 1. Market oriented measures
• ◦ letting wages fall in depressed areas so businesses come to hire cheap labor
• ◦ lower unemployment benefits
• ◦ reduce job security and make firing easier

• 2. Interventionist
• ◦ training programs
• ◦ education
• ◦ subsidize on-the-job training
• ◦ encourage firms to hire structurally unemployed

• 1. Market oriented measures
• ◦ ↑ incentives faced by workers to accept work
• ◦ lower unemployment benefits
• ◦ reduce period of time during which a worker is entitled to claim unemployment benefits
• ◦ lower personal income taxes

• 2. Interventionist
• ◦ improving information flows between employers and job seekers, » ↓ time worker spends looking for job
• ◦ establishment of more job centers and employment agencies

• Similar to lowering frictional unemployment
• ◦ provide information to workers about jobs available during off-peak seasons in other industries

Full employment equilibrium- real GDP equals potential GDP

◦ When the economy's real GDP is less than full employment GDP, the economy is experiencing a recessionary gap

◦ In a recessionary gap, the economy is experiencing real wage unemployment or cyclical unemployment. These types of unemployment arise in addition to unemployment when the economy is producing full employment output