The U.S. economy consistently experiences involuntary unemployment. The current

Question

The U.S. economy consistently experiences involuntary unemployment. The current unemployment rate is 5% or roughly 8 million people unemployed. What are the types of unemployment and how does the government (Bureau of Labor Statistics, BLS) measure the official rate (U-3)? Explain the terms discouraged worker and underemployed. If we include discouraged workers and the underemployed workers to those already counted as unemployed, will this increase or decrease the rate?  What can we infer about the cause of inflation (remember there are 2 types of inflation) by recognizing the fact that the U.S. persistently experiences unemployment?

What are the various types of unemployment? Looking at the graph below, what kind(s) of unemployment was/were created by the past financial crisis of 2008? What are the Philips Curve and the Natural Rate of Unemployment and how are they related? What do these two theories have to do with “tying the hands of government” and its ability to create a better economy for all? Name two consequences of unemployment. What do unions have to do with the number of people employed?

Explanation / Answer

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The three types of unemployment are-

1. Cyclical unemployment- This type of unemployment results from the cyclical fluctuations in the economy. For e.g.- During recession, the economy loses many jobs as business cut costs and even shut down.

2. Frictional unemploymeny- It refers to unemployment which happens when people shift from one job to another for better opportunities.

3. Structural unemployment- This form of unemployment occurs due to lack of demand for certain types of skilled workers in the market. For e.g. Industrial revolution led to fall in demand for workers who could manually weave the cloth in favor of those who could work the handloom mills.

The U3 rate of unemployment states percentage of workers in labor force who are unemployed and they have actively looked for work in past 4 weeks. The govt includes the workers who have been unemployed for 15 weeks or longer. It also includes those who lost their jobs or were hired as temporary workers. Note that labor force refers to civilians who are over 16 years and above and are willing to be employed in the market.

Discouraged workers are the workers who have left the workforce as they could not find work. On the other hand, underemployed worker are the ones who are employed below their skill set and idea wage rate for their skill sets.If both these worker classes are added to unemployed then the unemployment rate will increase.

There are two types of inflation- demand pull and cost-push. Persistent unemployment is likely to be related to lack of aggregate demand in the economy. That is, demand pull factors are to be related to persistent unemployment.

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