Download The Causes and Categories of Unemployment

AP Economics
Mr. Bernstein
Module 13:
The Causes and Categories of
Unemployment
February 2017
AP Economics
Mr. Bernstein
The Causes and Categories of Unemployment
• Objectives - Understand each of the following:
• The three types of unemployment and their causes
• The factors that determine the natural rate of
unemployment
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AP Economics
Mr. Bernstein
Frictional Unemployment
• Millions of jobs are destroyed every month, and
new ones are created
• Workers change jobs seeking better lifestyle or $$
• There may be time lags between jobs
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AP Economics
Mr. Bernstein
Structural Unemployment
• Arises from structural changes in labor market
• Demand for some skills declines
• Geographic distribution of jobs changes
• Mergers and/or foreign competition
• Characterized by persistent surplus of workers
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Minimum wage floors
Labor unions
Efficiency wages
Side effects of public policy (ie unemployment
insurance)
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AP Economics
Mr. Bernstein
Structural Unemployment
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AP Economics
Mr. Bernstein
Natural Rate of Unemployment
• Natural Unemployment = Frictional + Structural
Unemployment
• Cyclical Unemployment are deviations from the
natural rate due to business cycle
• Actual Unemployment = Natural Unemployment +
Cyclical Unemployment
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AP Economics
Mr. Bernstein
Changes in the Natural Rate of Unemployment
• Natural Rate in US is thought to be a bit <5%
• What changes Natural rate? Consider…
• Changes in Labor Force characteristics (ie age)
• Changes in Labor Market Institutions (ie role of unions
or rise of efficient, online job search sites)
• Changes in government policies (ie subsidies, training
programs)
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