Jobs and

Unemployment

CHAPTER

23

23.1 LABOR MARKET INDICATORS

Labour Force Survey

Working-age population is the total number of
people aged 15-64 years who are not in a jail, or some
other form of institutional care.
The working-age population is divided into those in the
labor force and those not in the labor force.

Labor force is the number of people employed plus

the number unemployed.

23.1 LABOR MARKET INDICATORS IN

MALAYSIA, 2011
Population
Labour Force
Employment
Unemployment

: 28.96 million
: 12.65 million
: 12.26 million
: 0.39 million

23.1 LABOR MARKET INDICATORS

Two Main Labor Market Indicators

The unemployment rate
The labor force participation rate

Unemployment rate is the percentage of people in

the labor force who are unemployed.

Unemployment rate =

Number of
people unemployed

x 100

Labor force
In 2011, the unemployment rate in Malaysia was 3.1 %

23.1 LABOR MARKET INDICATORS

Labor force participation rate (LFPR) is the

percentage of the working-age population who are
members of the labor force.
LFPR =

Labor force

Working-age population
In 2011, the LFPR in Malaysia was

o Total : 60.4%
o Male : 76.9%
o Female : 43.8%

x 100

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Sources of Unemployment
People who become unemployed are
Job loserspeople who are laid off from their jobs
Job leaverspeople who voluntarily quit their jobs
Entrants and reentrantspeople who have just left
school or who are now looking for a job after a
period out of the labor force.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Types of Unemployment
Frictional unemployment is the unemployment that
arises from normal labor turnoverfrom people
entering and leaving the labor force and from the
ongoing creation and destruction of jobs.

Structural unemployment is the unemployment that

arises when changes in technology or international
competition change the skills needed to perform jobs or
change the locations of jobs.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Seasonal unemployment is the unemployment that

arises because of seasonal weather patterns.

Cyclical unemployment is the fluctuating

unemployment over the business cycle that increases
during a recession and decreases during an expansion.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Full Employment
Full employment occurs when there is no cyclical
unemployment or, equivalently, when all the
unemployment is frictional, structural, or seasonal.

Natural unemployment rate is the unemployment

rate when the economy is at full employment. Some
economists considered a country to be at full
employment when the unemployment rate is around 3%
to 4%.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Full Employment
Unemployment rate in Malaysia, 1995-2010
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Unemployment rate
3.1
2.5
2.4
3.2
3.4
3.1
3.6
3.5
3.5
3.5
3.5
3.3
3.3
3.2
3.7
3.4

Source: Economic Report, various issues.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Unemployment and Real GDP

Cyclical unemployment is the fluctuating unemployment
over the business cycleunemployment increases
during recessions and decreases during expansions.

At full employment, there is no cyclical unemployment.

At the business cycle trough, cyclical unemployment is
positive.

At the business cycle peak, cyclical unemployment is

negative.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Potential GDP is the level of real GDP that the

economy would produce if it were at full employment.
Because the unemployment rate fluctuates around the
natural unemployment rate, real GDP fluctuates around
potential GDP:
When the unemployment rate is above the natural
unemployment rate, real GDP is below potential
GDP.
When the unemployment rate is below the natural
unemployment rate, real GDP is above potential
GDP.

23.3 SOURCES AND TYPES OF UNEMPLOYMENT

Figure 23.8 shows the
relationship between
unemployment and real
GDP.
As the unemployment rate
fluctuates around the
natural rate unemployment
in part (a), real GDP
fluctuates around potential
GDP in part (b).