CHAP

TER

5
Macroeconomics:
Unemployment
Prepared by:
Prepared
by: Eduard
Fernando Quijano
Mr.
R. Chua
and Yvonn Quijano

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Opening Prayer
Our Father,
You bestow upon us your infinite Grace.
We are grateful for your perpetual kindness.
Please shower us with wisdom as we go through
todays lesson.
We ask this through Jesus Christ. Amen.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Vocabulary Drill

Explain the 3 Strains of Inflation

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Review

Causes and Impacts of Inflation

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Editorial Cartoon Analysis

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Introduction
During the recession that began in 2007, the number of
unemployed people in the United States rose by more
than 4 million.
Of the 11 million unemployed people at the end of 2008,
half were job losers, people who lost their jobs
involuntarily.
During the Great Depression, the unemployment rate
rose much more, reaching an all-time high of 25 percent
in 1933.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Employed vs. Unemployed

People who perform any paid work, as well as
those who have jobs but are absent from work
because of illness, strikes, or vacations.
Persons who do not have a job, have actively
looked for work in the prior 4 weeks, and are
currently available for work.
Unemployment rate Number of unemployed
divided by the labor force.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Underemployed
People who are compelled to work shorter hours
than they would like to.
Disguised Underemployment
Hidden Unemployment
Prematurely Retired

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Disguised Underemployment
A trick used by some countries in order to curb
down unemployment statistics.
Workers are hired for the sake of disguising the
unemployed as employed.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Hidden Underemployment
Refers to cases wherein people who are engaged
in non-employment activities do so not because
they want to but because they are unable to find
jobs suited to them. (e.g. housewives or
students)

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Prematurely Retired
A practice mostly observed in government
institutions.
The government may ask some people to retire at
an earlier age to give way to the younger ones
who are seeking employment.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Okuns Law
States that for every 2 percent that GDP falls
relative to potential GDP, the unemployment rate
rises about 1 percentage point.
Provides the vital link between the output market and

the labor market.

Describes the association between short-run
movements in Real GDP and changes in
unemployment.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Informal Sector
Consists of hawkers, street vendors, sari-sari
store owners, pedicab drivers, etc. who are
usually self-employed.
Provides cheaper sources of food, goods, and

services for the formal sector.

Serves as an important support group for the formal
sector of the economy.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Equilibrium Unemployment
Arises when people become unemployed voluntarily
as they move from job to job or into and out of the
labor force.
Sometimes called frictional unemployment because
people cannot move instantaneously between jobs.
A worker at a 24/7 convenience store might decide that

the pay is too low, or the hours are too inconvenient, and
quit to look for a better job.
2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Disequilibrium Unemployment
Occurs when the labor market or the
macroeconomy is not functioning properly and
some qualified people who are willing to work at
the going wage cannot find jobs.
Sometimes called involutarily unemployed
Structural unemployment
Cyclical unemployment

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Structural Unemployment
Signifies a mismatch between the supply of and
the demand for workers.
An acute shortage of nurses arose recently as the

number of skilled nurses grew slowly while the

demand for nursing care grew rapidly because of an
aging population.
Not until nurses salary rose rapidly and the supply
adjusted did the structural shortage of nurses decline.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Cyclical Unemployment
Exists when the overall demand for labor
declines in business-cycle downturns.
In the major recession of 2007-2009, the demand for

labor declined and unemployment rose in virtually

every industry and region.
In the long expansion of the 2000s, the unemployment
fell in virtually every state in the United States.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Economic Impact
When the unemployment rate goes up, the economy
is in effect throwing away the goods and services
that the unemployed workers could have produced.
The largest economic loss occurred during the
Great Depression. ($ 2.796 T est.)
The oil and inflation crises of the 1970s and 1980s
also generated more than a trillion dollars of lost
output. ($ 1.694 T est.)

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Social Impact
No dollar figure can adequately convey the
human and psychological toll of long periods of
persistent involuntary unemployment.
The personal tragedy of unemployment has been
proved again and again.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Great Depression (San Francisco)

Id get up at five in the morning and head for the
waterfront. Outside the Spreckles Sugar Refinery, outside
the gates, there would be a thousand men. You know
dang well theres only three or four jobs. The guy would
come out with two little Pinkerton cops: I need two guys
for the bull gang. Two guys to go into the hole. A
thousand men would fight like a pack of Alaskan dogs to
get through. Only four of us would get through.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair

C H A P T E R 17: Introduction to
Macroeconomics

Recollection of an
Unemployed Construction Worker
I called the roofing outfits and they didnt need me because they
already had men that had been working for them five or six
years. There wasnt that many openings. You had to have a
college education for most of them. And I was looking for
anything, from car wash to anything else. So what do you do all
day? You go home and you sit. And you begin to get frustrated
sitting home. Everybody in the household starts getting on
edge. They start arguing with each other over stupid things
cause theyre all cramped in that space all the time. The whole
family kind of got crushed by it.

2004 Prentice Hall Business Publishing

Principles of Economics, 7/e

Karl Case, Ray Fair