ECO 202 Cram Kit Bundle

Unemployment
Types of Unemployment
Unemployment Measures
Okun’s Law
Misery Index
Economic Measures
Consumer Price Index (CPI)
Gross Domestic Product (GDP)
Gross National Product (GNP)
Potential Output
Money Supply
Stock vs. Flow
Economic Models
Supply & Demand
Aggregate Supply & Aggregate Demand
Economic Gaps
Interest Rates
Interest Rates
Loanable Funds
Comprehensive

Unemployment Rate

The total unemployment rate (U) in an economy is the sum of frictional unemployment (Uf), structural unemployment (Us), and cyclical unemployment (Uc).

Therefore, we can apply the following formula to solve for it:

U% = Uf% + Us% + Uc%

If we're not given the frictional, structural, and cyclical unemployment, then we can solve for it like so:

U% = Total # of Unemployed / Labor Force

How to calculate unemployment rate (U%)

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

When we plug in Uf%, Us%, and Uc%...

The people in Crammerville who are frictionally unemployed (Uf) can be identified here:

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

This means that we can solve for the frictional unemployment rate (Uf%) like so...

Uf% = (Total # of Quits + Total # of Fired + Total # of Started Looking) / Labor Force
Uf% = (2 + 1 + 1) / Labor Force

...and once we pinpoint that the labor force in Crammerville is 100 people...

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

Uf% = (Total # of Quits + Total # of Fired + Total # of Started Looking) / Labor Force
Uf% = (2 + 1 + 1) / 100

...we can solve for a Uf% of 4%!

Uf% = (Total # of Quits + Total # of Fired + Total # of Started Looking) / Labor Force
Uf% = (2 + 1 + 1) / 100
Uf% = 4%

We can plug this into our U% equation like so:

U% = Uf% + Us% + Uc%
U% = 4% + Us% + Uc%

The people in Crammerville who are structurally unemployed (Us) can be identified here:

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

We can plug this into Us% like so:

Us% = Total # of Long-term Unemployed / Labor Force
Us% = 2 / Labor Force

Once we pinpoint that the labor force in Crammerville is 100 people...

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

Us% = Total # of Long-term Unemployed / Labor Force
Us% = 2 / 100

...we can solve for a structural unemployment rate of 2%!

Us% = Total # of Long-term Unemployed / Labor Force
Us% = 2 / 100
Us% = 2%

We can plug this into our unemployment rate (U%) equation like so:

U% = Uf% + Us% + Uc%
U% = 4% + 2% + Uc%

The people in Crammerville who are cyclically unemployed (Uc) can be identified here:

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

We can plug this into Uc% like so:

Uc% = Total # Laid-Off Because Bad Economy / Labor Force
Uc% = 4 / Labor Force

Once we pinpoint that the labor force in Crammerville is 100 people...

Scenario: Crammerville's population is 120, containing 5 children. The labor force 100 has workers: 90 of which are working, 2 just quit their jobs, 1 was just fired, 1 recently entered the labor market, 4 were laid off because the economy was bad, and 2 have been unemployed for 5 years because they have no marketable skills. The remaining people of Crammerville who are not in the labor force wish they had a job, but have given up looking.

Uc% = Total # Laid-Off Because Bad Economy / Labor Force
Uc% = 4 / 100

...we can solve for a cyclical unemployment rate of 4%!

Uc% = Total # Laid-Off Because Bad Economy / Labor Force
Uc% = 4 / 100
Uc% = 4%

We can plug that into our unemployment rate (U%) equation like so:

U% = Uf% + Us% + Uc%
U% = 4% + 2% + 4%

...we get the following:

U% = Uf% + Us% + Uc%
U% = 4% + 2% + 4%

This results in an unemployment rate of 10%!

U% = Uf% + Us% + Uc%
U% = 4% + 2% + 4%
U% = 10%