(2-4-16) Unit II Types of Unemployment, GDP Gap, and Rule of 70

Types of Unemployment

Frictional

-people searching for a job

-Temp. unemployed or in-between jobs

-Transferable skills Ex: College/High school grad. looking for job

-Leaves job for a better job

Structural

-changes in the structure of the labor force makes some skills obsolete

- workers, no transferable skills Ex: VCR's

note- the above two are inevitable

Seasonal

-Due to the time of the year and nature of the job Ex: Lifeguard, Santa Claus/Easter Bunny, School bus drivers, Construction workers

Cyclical

-Unemployment that results from economic downturns Ex: Recession

-As demand for goods and services fall, demand for labor falls, thus workers are laid off.

note- Frictional + Structural = NRU

Full Employment means NO CYCLICAL UNEMPLOYMENT!

(2-5-16) GDP Gap

GDP gap- the amount by which actual GDP falls short of potential GDP

Okun's law- for every 1% by which actual unemployment rate exceeds the NRU a GDP of about 2% occurs Ex: 2012 unemployment rate of Mexico - 7.4% NRU for Mexico - 6%-> 7.4%-6%=1.4% -> 1.4% x 2%= 2.8%

Actual - NRU = gap

(2-8-16) Rule of 70

Rule of 70- used to determine how many years it will take for a value to double given a particular annual growth rate Ex:if you out $20,000 in the bank and it earns a yearly interest rate of 7%. How many years will it take for your interest/income to double? 7/70 = 10 years