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1. Lecture 9Unemployment and Labor Market
2. UNEMPLOYMENT A distribution of Total Population to Labor Force, Employment, and Unemployment Under 16 years (70.5 Million) Disable or Not in Labor Force (76.8 Million) Total Population (296.6 Million) Employed (141.7 Million) Labor Force (149.3 Million) Unemployed (7.6 Million)
3. Unemployment Rate = Number of Unemployed Labor Force  100 Definition: If a person is capable of working and he is actively looking for a job but cannot find a job then he is called unemployed. Labor force: It is the sum of the employed and unemployed people able to work. Unemployment rate: It is defined as the percentage of the labor force that is unemployed.
4. Types of Unemployment 1) Structural Unemployment: Unemployment caused as a result of the decline of industries and the inability of employees to move into jobs being created in new industries. Example: Introduction of computer in office work. 2) Frictional Unemployment: Unemployment caused when people move from job to job. A person can remain unemployed when he is looking for a better job. In such case he might get a job but doesn’t work there because he wants to get a better job. Seasonal Unemployment: Unemployment caused because of the seasonal nature of employment . Example: tourism, etc. Cyclical Unemployment: The unemployment that arise due to business cycle. Example: During recession many people loss their jobs because of the fall of labour demand in the economy.
5. Labor Demand In an economy labor demand comes from firms and government. Demand of Labour: The amount of people/labour demanded by firms at different wage rates. There is an inverse relationship between the wage rate and the number of people demanded by the firms. So the labor demand curve is downward sloping.
6. The Labour Market Labour Demand Curve Wage Rate ($ per hour) 10 There is an inverse relationship between the wage rate and the number of people employed by the firm. 7 4 DL 10 15 19 Number Employed
7. Labour Supply Supply of Labour: The amount of people offering their labour at different wage rates. We can devote our time to either labour or leisure. So how much labour an individual is going to supply depends on the opportunity cost of labour which is leisure When the wage rate increase the opportunity cost of leisure increases that means an individual will be losing a lot of money if he is enjoying leisure time and so he increase labor hour. Thus the labor supply curve is upward sloping as there is a positive relation between wage and no of workers will to supply labor.
8. Labour Supply Curve Wage Rate ($ per hour) SL 5.50 5 Number employed 35 45
9. The Labour MarketEquilibrium in Labour Market Wage Rate ($ per hour) SL The market wage rate for a particular occupation therefore will occur at the intersection of the demand and supply of labour. Here equilibrium wage rate is $6 and equilibrium employment is 30 6.00 DL 30 Number employed
10. Impact of increase in labor demand A rise in the demand for labour would force up the wage rate as there would be excess demand for labour. Wage Rate ($ per hour) SL 7.50 6.00 Excess Demand DL1 DL Q1 Q2 Number employed
11. Impact of increase in labor supply Wage Rate ($ per hour) SL1 An increase in the supply of labour would lead to a fall in the wage rate as there would be an excess supply of labour. SL2 SL1 6.00 5.00 Excess Supply DL Q1 Q2 Number employed
12. Labor Surplus of labor = supply Unemployment Minimum wage WE Labor demand LD LE LS Unemployment from imposing a minimum wage Wage 0 Labor