Labor Force = # Employed + # Unemployed
Employed: An individual who is currently working, and not seeking work.
Unemployed: An individual who is not working, but is looking for a job or is waiting to start a job.
Employment Rates
Employment Rate = (employed/labor force) * 100
Unemployment Rate = (unemployed/labor force) * 100
Types of Unemployment
Frictional: Individuals are unable to find work immediately due to lack of information.
Structural: Individuals are unable to find work due to characteristics of the economy. I.e. the unemployed do not have the skills needed by the employers.
Cyclical: Unemployment due to economic recessions.
Effects of Unemployment
Okun's Law: Developed in 1962 by economist Arthur Okun. A 1% increase in the unemployment rate results in a 2.5% decrease in GDP output.
Special Considerations
Underemployed: Individuals who are working, but not to their full capacity. They wish to have more work.
Discouraged Workers: Individuals who have given up on their search for work. These individuals are not counted in the unemployment rate. This skews the unemployment rate, which makes the employment situation look better than it really is.
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