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Hyun Bin Lee (basically the same as Yellow book summary) Unemployment: those of working age who are without work, but who are available for work at the current wage rates. Labor force: the total number of people who do have jobs, plus those who are unemployed. Unemployment rate: is the number of unemployed expressed as a percentage of the labor force Full employment: a situation in which everyone in the labor force that is willing to work at the market rate for his type of labor has a job. Underemployment: A situation where a country has excess labor that remains employed. Also, where people are employed but working less hours than they would. Ex) part-time job workers Different ways of measurement Ex) in Australia if you are employed for one hour a week, you are considered employed. Only unemployed “who are registered” show up in number if there is no incentive to register, the numbers will be lower Groups of people can be excluded from receiving a benefit ex) mothers, school leavers, part-time workers Some people claim they are unemployed even though they are not ex) private tutors “Social stigma to be unemployed” in some cultures - Equilibrium unemployment: It is seen as the rate of full employment where demand for labor equals the supply of labor, but unemployment still exists due to three different reasons. Seasonal Structural Frictional Disequilibrium unemployment: The labor market is not in equilibrium, so unemployment exists. Cyclical or demand deficient Real wage Seasonal: unemployment associated with industries or regions where the demand for labor is lower at certain times of the year. Structural: Unemployment as a result of people who are between jobs. It often takes time for workers to find jobs, even though there are jobs. Frictional: unemployment as a result of people who are between jobs. It often takes time for workers to find jobs, even though there are jobs. Real-wage: disequilibrium unemployment being driven up above the market clearing rate Demand deficient or cyclical: unemployment caused by the business cycle where the slowdown in economic activity with falling AD is the cause of unemployment Labor markets do not work smoothly, labor markets resist wage cuts. Wages tend to rise easily but resist falling, because workers are not passive commodities. Also unions often prevent wage from falling. It falls in the unemployed individuals, their families and friends, society and the national economy Loss of income difference between their previous wage and any unemployment benefit Lost of self-esteem Lower living standard Breakdown in family relationships Possible increase of crime and vandalism Economic output of individuals lost to society (economy operates inside PPC) Government revenue falls while expenditure increases Resource reallocation from sunset industries to sunrise industries Frictional Improve flow of information Reduce state benefits, so increase opportunity cost of staying unemployed Structural Encourage workers to leave old industries and move to where the work is Cutting wages locally to widen differential with prosperous areas Overall cut in welfare payment Government interventions such as giving tax holidays, grants, government funding, and infrastructure developments Seasonal Similar action as with structural unemployment Real-wage unemployment Remove restrictions to allow market to operate freely Reduce power of unions (stickiness of wages) Abandon minimum wages Minimize social insurance contributions for firms Reduce state welfare benefits Demand-deficient unemployment Government should use fiscal and monetary policy to raise AD and so demand for jobs