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  • Summary Notes On Unemployment From Mankiw

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    Chadia Laurent-Mathurin
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    This document defines key terms related to unemployment and steady state unemployment. It provides the following information: 1) The labor force (L) is the sum of the unemployed (U) and employed (E). The unemployment rate is defined as U/L. 2) In a steady state condition, unemployment is neither falling nor climbing. This is defined by the equation fU = sE, where f is the job finding rate and s is the job separation rate. 3) By substituting L-U for E and dividing both sides by L, the steady state unemployment rate U/L can be solved for as s/(s+f).

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    This is a summary on unemployment from an Intermediate Macro-Economic perspective. The notes are taken from Mankiw's Chapter on Unemployment. The Notes discuss steady state, frictional and cyclical unemployment, and demonstrates the use of these topics in solving problems.

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    Summary Notes on Unemployment from Mankiw

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    This document defines key terms related to unemployment and steady state unemployment. It provides the following information: 1) The labor force (L) is the sum of the unemployed (U) and employed (E). The unemployment rate is defined as U/L. 2) In a steady state condition, unemployment is neither falling nor climbing. This is defined by the equation fU = sE, where f is the job finding rate and s is the job separation rate. 3) By substituting L-U for E and dividing both sides by L, the steady state unemployment rate U/L can be solved for as s/(s+f).

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    260 views3 pages

    Summary Notes On Unemployment From Mankiw

    Uploaded by

    Chadia Laurent-Mathurin
    This document defines key terms related to unemployment and steady state unemployment. It provides the following information: 1) The labor force (L) is the sum of the unemployed (U) and employed (E). The unemployment rate is defined as U/L. 2) In a steady state condition, unemployment is neither falling nor climbing. This is defined by the equation fU = sE, where f is the job finding rate and s is the job separation rate. 3) By substituting L-U for E and dividing both sides by L, the steady state unemployment rate U/L can be solved for as s/(s+f).

    Copyright:

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    CHAPTER 6 UNEMPLOYMENT: DEFINITIONS AND STEADY STATE NOTATIONS AND DEFINITIONS

    L denotes the labour force. The labour force is the sum of the unemployed and employed; L = E + U. The rate of unemployment is U/L E is the number of employed workers U is the number of unemployed workers. s denotes the rate of job separation. This is the fraction of unemployed persons who leave or lose their job each month. f denotes the the rate of job nding. This is the fraction of unemployed persons who nd new jobs each month. s + f = U. In a condition of steady state, unemployment is neither falling nor climbing. This condition is dened as: fU = sE

    USING STEADY STATE TO FIND THE UNEMPLOYMENT RATE


    STEP ONE Substitute L - U for E in the steady state equation. The equation is now rewritten as fU = s(L - U) STEP TWO Divide both sides of the equation by L to obtain: f (U/L) = s (1- U/L) STEP THREE Solve for U/L, to nd: U/L = s/s+f

    Tutorial Sheet: Question 5 The separation rate in an economy is 5 percent and the rate of job nding is 7 percent. a. If this economy has 500 workers in the labor force, calculate the steady state unemployment rate and the unemployment level.
    The condition of steady state unemployment is found at fU = sE where: f: is the rate of job nding U: is the number of unemployed persons in the labour force s: the rate of separation E: the number of employed persons in the work force. In the above question: f = 5% U = f+s =12%. Thus U = 12% of the Labour force. 12% of 500 = 60 s = 7% E = 88% of 500 = 440 A rearrangement of the condition will give: U/L = s/s+f 5/12 = 0.416 Under the assumption that the natural rate of employment is equivalent to the unemployment rate under the classical purview, the unemployment level will be equal to 0.416 of the labour force. Thus, the unemployment level is 208.

    b. If the separation rate falls to 3 percent, what happens to the steady state unemployment rate and unemployment level?
    The equation above shows that the steady state rate of unemployment is dependent on rate of separation and the rate of job nding. The higher the rate of separation the higher unemployment level, and the lower the rate of separation the lower the level unemployment. Thus, if the rate of separation falls to 3% to 7% it can be assumed that unemployment rate as well as the unemployment level will also fall. U/L = 3/10. Thus steady state = 0.30 Unemployment level = 0.30 x 500 = 150 the the of the

    c. Now if the labor force suddenly increases to 600 workers (the separation rate remains at 3 percent), what is the immediate change in the unemployment rate? What is the new steady state rate of unemployment? Also describe the immediate and steady state change in the unemployment level.
    Steady state: U/L = 3/10 Unemployment level: 0.30 x600 = 180 Unemployment rate: 10%

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