3.2 The EmploymentUnemployment Connection

This dimension of unemployment is of particular interest because it is so often overlooked in discussions of unemployment.
The role of population growth is predictable. One can look ahead and see a wave of baby boomers leaving school, and the number of immigrants is a known quantity. The role of changes in the participation rate is not so easy to predict. The women's liberation movement was one factor leading to annual increases in the female participation rate that were difficult to predict with any accuracy. During the last 40 years the female participation rate has increased from 38 percent to about 60 percent, and the male participation rate fell from 83 percent to about 75 percent, causing the overall participation rate to increase from 60 to 67 percent. Perhaps most difficult to predict in this regard are changes in the participation rate caused by the discouraged/encouraged worker phenomenon discussed earlier.
3.3
What is Full Employment?
To an economist full employment does not mean a position in which the unemployment rate is zero. Zero unemployment is not realistic, for several reasons. First, at any point in time some people are temporarily unemployed because they are in the midst of changing jobs or looking for an initial job. The unemployment corresponding to this ongoing process of improving the occupational and geographical match of workers and jobs is referred to as frictional unemployment.
Second, many people may be unemployed because technological progress has made their skills obsolete or because new trade agreements have changed the nature of what is produced domestically. They must retrain to obtain jobs. Both frictional unemployment and this structural unemployment are healthy because they mean that the economy is responding to the forces of change. Some workers are switching jobs to produce the goods and services that the changing tastes of society are demanding or to find jobs they will be happier doing. Other workers are retraining to keep up with technological innovations that improve productivity. Part of frictional and structural unemployment, however, reflects demographic factors such as the increased participation rate of females and the young. Many of the former need more training, having spent time as homemakers, and the latter are both unskilled and at a stage in life when switching jobs is more common.
The third reason that zero unemployment is unrealistic is that institutional phenomena may affect unemployment. For example, minimum wage laws may make it too costly to hire extra labor; generous unemployment benefits may make it easier to stay or become unemployed; government regulations, such as restrictions on how many hours per day a store can be open, may decrease job availability; and there may be racial or gender discrimination.

 



Macroeconomic Essentials. Understanding Economics in the News 2000
Macroeconomic Essentials - 2nd Edition: Understanding Economics in the News
ISBN: 0262611503
EAN: 2147483647
Year: 2004
Pages: 152

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