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

Frictional

Economically, frictional unemployment always occurs. It's the nature of any economy and the "friction" that occurs in job placement. Frictional unemployment is usually around 3% (typically 1% of the workforce from each component).

Frictional unemployment (Uf) is made up of 3 groups of people:

1. Those who just quit.
2. Those who just got fired.
3. Those who just started looking for a job.

How to calculate frictional unemployment (Uf)

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 calculate frictional unemployment with the following formula:

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking

In Crammerville, we can see 2 people just quit their jobs...

Situation: 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.

...which we can plug in like so:

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + Total # of Fired + Total # of Started Looking

In Crammerville, we can see 1 person got fired...

Situation: 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.

...which we can plug in like so:

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + 1 + Total # of Started Looking

In Crammerville, we can see 1 person just started looking for a job...

Situation: 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.

...which we can plug in like so:

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + 1 + 1

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + 1 + 1

When we solve, this results in a total of 4 members of Crammerville's population experiencing frictional unemployment.

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + 1 + 1
Uf = 4

How to convert to percentage

To determine the percentage of frictional unemployment in Crammerville, we need to divide our frictional unemployment value by the entire labor force.

Uf% = Uf / Labor Force

As calculated above, our Uf is 4...

Uf = Total # of Quits + Total # of Fired + Total # of Started Looking
Uf = 2 + 1 + 1
Uf = 4

...which can be plugged in like so:

Uf% = Uf / Labor Force
Uf% = 4 / Labor Force

In Crammerville, we have 100 workers in the labor force...

Situation: 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.

...which can be plugged in like so:

Uf% = Uf / Labor Force
Uf% = 4 / 100

Uf% = Uf / Labor Force
Uf% = 4 / 100

When we solve, it results in a frictional unemployment percentage of 4%!

Uf% = Uf / Labor Force
Uf% = 4 / 100
Uf% = 4%