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hey everyone i'm mr. willis and you will
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love economics on in-point what a bummer
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it's the biggest hindrance of economic
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growth when members of the labor force
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are not working the economy loses the
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potential real GDP output that each
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worker could have produced with their
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time and energy essentially we waste the
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scarce resource of labour and quickly
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producing greater outputs of goods and
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services meaning our real GDP output is
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growing slower than it should be or it
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could even be contracting altogether
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this is why every economy focuses on
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preventing excessive unemployment we
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measure unemployment in our economy with
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the unemployment rate the unemployment
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rate is calculated by taking the number
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of workers who cannot find work divided
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by the total number of workers in the
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labor force
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the unemployment rate illustrates the
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percentage of the members of the labor
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force who are willing and able to work
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but not find a job at the equilibrium
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wage in the labor market for example
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let's say a small country has a labor
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force of 10 million people and 1 million
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of those workers currently cannot find a
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job
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this country's unemployment rate is 10
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percent workers who factor into the
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unemployment rate must first be counted
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as part of the labor force to be
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included in the labor force a worker
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must meet certain criteria first there
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must be at least 16 years old otherwise
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we'd have a lot of lazy first graders
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out there jacking up our unemployment
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numbers come on you're 8 years old get a
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job already also you cannot be a
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full-time student if you're a high
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school or college student you are not
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counted in the labor force and therefore
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don't count as unemployed even if you
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are looking for work and cannot find it
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a majority of your time is already
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devoted to acquiring human capital in
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order to become a more productive worker
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in the future you cannot be an active
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duty member of the military because
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technically you already have a job
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working for the United States government
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to provide national security for the
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American people
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you also can't be retired
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because well you're officially retired
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from work you cannot be
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institutionalized meaning you're not
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counted as part of the labor force if
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you're hospitalized or you're in prison
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and most importantly you must be both
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willing and able to work if you are
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desperately willing to work but unable
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to do so either because of a physical or
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mental handicap you are not counted as
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unemployed because you simply can't
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participate in the labor force if you
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are able to work but are unwilling to
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work because living with mom and dad and
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eating Cheetos on the couch while
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playing call of duty all day is just too
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much to give up then you are not counted
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as unemployed you have to be willing to
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work to be counted in the labor force
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and if you're not a participant in the
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labor force you're technically not
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unemployed there are three types of
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unemployment
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the first is frictional unemployment
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workers who are frictional II unemployed
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are temporarily out of work or in
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between jobs these workers could have
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been fired or are seeking a new job or
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quit their job to change fields and are
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putting out applications simply put
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these workers are qualified and skilled
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and their skills are transferrable to
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many other fields but they currently
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aren't working frictional unemployment
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tends to increase and decrease during
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certain times of the year because the
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nature of some jobs is directly tied to
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seasonal changes this is known as
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seasonal unemployment Santa Claus and
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Easter Bunny impersonators are in high
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demand during the Christmas and Easter
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seasons but come December 26 Santa let
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go and if he comes frictional e or
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seasonally unemployed until he finds new
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work in another field the day after
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Easter
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buh-bye bunny he seasonally unemployed
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until he gets another job the good news
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is because the seasons always return so
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did the jobs so seasonal unemployment is
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temporary the second type of
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unemployment is structural unemployment
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workers who are structurally unemployed
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have lost their jobs because they're
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skilled to become obsolete due to some
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structural change in the labor force
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unfortunately these worker skills are
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non-transferable meaning that they
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cannot be used in another field and
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therefore these workers are useless to
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the workforce until they can acquire a
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new skill
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to meet the evolving labor force as a
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result when a worker become structurally
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unemployed their jobs never come back
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meaning a worker will remain unemployed
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until they learn how to do something new
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structural unemployment happens
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periodically throughout history as the
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human workforce is replaced by
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innovative technology that has surpassed
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the productivity of human workers this
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is the type of structural unemployment
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known as technological unemployment it
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is inevitable for firms to automate as
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technology advances and replace human
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workers with physical capital that has
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surpassed human productivity in fact
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this type of automation is mandatory if
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any economy is to promote long-run
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economic growth unfortunately the result
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in humans being replaced by machinery
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making human jobs obsolete because the
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machine can do it better this is a
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phenomenon called creative destruction
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for example carriage makers at the turn
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of the 20th century became obsolete when
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the horse-drawn carriage was replaced
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with the automobile in order to find new
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work the carriage maker needs to learn
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new skills and find work in a new field
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of occupation because the old job was
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never coming back and until he found
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work he was structurally unemployed the
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third type of unemployment is cyclical
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unemployment workers who are cyclic the
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unemployed have lost their jobs because
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of a downturn of the business cycle as
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the economy contracts real GDP output
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will decrease because consumer demand
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decreases leading firms to produce less
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this lowers the demand for labour
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meaning workers are fired and
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unemployment increases during the Great
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Depression as the unemployment rate
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skyrocketed to 25 percent a vast
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majority of that unemployment was
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cyclical unemployment as the severe
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contraction in the nation's economy met
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firms slowed their production and fired
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workers who were no longer needed the
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good news is the workers who lose their
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jobs due to cyclical unemployment will
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see those jobs returned as the economy
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begins to grow and economic conditions
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begin to improve as the economy heats up
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and consumer demand increases firms will
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begin to increase their production
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levels and they will demand greater No
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the workers eliminating cyclical
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unemployment cyclical unemployment is
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also entirely preventable policies can
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be used to promote real GDP growth or
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correct economic contraction which
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minimizes the severity of cyclical
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unemployment and economy experiences on
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the business cycle cyclical unemployment
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is visible as the space between the
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trough and the growth trend line closing
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the trough eliminate cyclical
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unemployment alright so what are we
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waiting for
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let's get to zero percent unemployment
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by eliminating frictional structural and
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cyclical unemployment except that's not
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possible there are two types of
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unemployment that are unavoidable
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frictional and structural unemployment
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economists agree that at any given time
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four to six percent of the labor force
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is either frictional E or structurally
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unemployed and there's nothing we can do
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about it how do we prevent someone from
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being late to work and getting fired or
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from quitting their job to apply for a
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new one
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how do we prevent time for making skills
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obsolete it's just not possible and it's
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out of our control as a result the four
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to six percent of frictional and
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structural unemployment that take place
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at any given time in our economy it's
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considered our natural rate of
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unemployment meaning four to six percent
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unemployment is considered an optimal
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unemployment rate economists use the
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four to six percent natural rate of
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unemployment to gauge where we are in
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the business cycle if the unemployment
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rate exceeds six percent this indicates
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that there's excessive cyclical
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unemployment occurring in our economy
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and our real GDP output is most likely
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contracting if our unemployment rate is
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below four percent our economy is
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growing at a rate that is not
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sustainable
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which could lead to excessive inflation
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and eventually economic contraction as a
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result because some frictional and
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structural unemployment cannot be
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prevented four to six percent
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unemployment is the target we aim for
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when it comes to our unemployment rate
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the unemployment rate is the most
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accurate way to measure joblessness in
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our workforce however many economists
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criticize its accuracy for various
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reasons first the unemployment rate does
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not include disgruntled job seekers who
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has given up looking for work if a job
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seeker is unable to find work over an
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extended period of time
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they can't become frustrated and give up
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looking for job altogether when they
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give up looking for work they actually
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withdraw from the labor force causing
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the unemployment rates to decrease
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leading us to believe that more workers
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have been hired in the economy when
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these frustrated job applicants decide
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to give it another go and look for work
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again they reimburse in the labor force
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which can actually cause the
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unemployment rate to rise giving us the
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impression that jobs have been reduced
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and workers have lost work another
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criticism is that the unemployment rate
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does not consider underemployment a
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worker is considered underemployed if
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they take a job for which they are
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overqualified or they work part-time for
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a smaller salary than they are capable
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of earning underemployment occurs
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because frictional unemployed workers
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need income and out of desperation they
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take a job for which they are
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overqualified or they get paid less than
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they are worth imagine a worker with a
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PhD working as a waitress she has the
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ability to solve equations in advanced
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biochemistry but she's working part-time
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at Chili's waiting on tables and
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refilling bottomless chips and salsa to
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pay the bills she's in a terrible
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situation and her human capital is being
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wasted but technically she's employed
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the unemployment rate can be low but it
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does not reflect the hundreds of
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thousands or even millions of workers
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that may be underemployed the
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unemployment rate also doesn't reflect
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age race and gender inequalities in the
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workforce
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the unemployment rate illustrates
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joblessness in the aggregate workforce
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but it hides the fact that certain
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groups suffer from higher rates of
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unemployment due to secondary traits and
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characteristics for example ethnic
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minorities tend to have higher
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unemployment rates than white workers as
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can Americans tend to have a higher
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unemployment rate than any minority
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group and it typically runs three to
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five percent higher than the national
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unemployment rate the unemployment rate
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for teenagers runs much higher than the
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national rate at times a staggering 10%
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higher firms tend to assume that teens
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are less mature and less productive than
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their older competitors in the labor
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market and so they are less likely to be
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hired when applying for the same jobs as
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older
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women tend to have a higher unemployment
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rate than men although that gap is
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slowly closing any combination of these
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criteria will dramatically increase the
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unemployment rate for job applicants for
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example young african-american women
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tend to have the highest unemployment
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rate of any subgroup in the American
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workforce higher unemployment rates
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among subgroups means that it is harder
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for those groups to earn income and
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therefore meet their needs and wants
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this can put these groups at a
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significant economic disadvantage which
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is one of the reasons why we try to
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eliminate discrimination in the
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workforce and that's unemployment be
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00:12:01
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like to learn more you can click here
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destruction and you can click here for
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00:12:15
thank you so much for watching I'll see
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you next time when you provide economic
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