3/31/2023

Unemployment

Xuan-Lam Nguyen

2023

Unemployment

§ Identifying Unemployment
§ Main Types of Unemployment
§ Natural Unemployment

1
 3/31/2023

Identifying Unemployment
Concepts

§ Unemployment occurs when someone is willing & able to

work but does not have a paid job.
 Unemployment rate is the percentage of people in the labour
force who are unemployed.
 Consequently, measuring the unemployment rate requires
identifying who is in the labour force.
- Labour force includes people who are either employed or
unemployed.

Identifying Unemployment
Concepts

§ Employed includes people who are in a paid job for one

hour or more in a week.
 Those who
- Are paid employees
- Worked in their own business
- Are unpaid workers in a family member’s business
 Full-time & part-time workers
 Temporarily absent
- Vacation
- Illness
- Bad weather

2
 3/31/2023

Identifying Unemployment
Concepts

§ Unemployed includes people who are not in a paid job,

but who are actively looking for work.
 Those who
- Were not employed
- Were available for work
- Tried to find employment during the previous four weeks
 Those who
- Were laid off
- Are waiting to be recalled to a job

Identifying Unemployment
Concepts

§ Not in the labour force includes people not in a paid job,

and who are not looking for work.
 This can include people who are
- Studying
- Caring for children or family members on a voluntary basis
- Retired
- Permanently unable to work.

3
 3/31/2023

Identifying Unemployment
Concepts

Identifying Unemployment
Computation method

§ The GSO conducts a survey each month – called the

Labour Force Survey – in which it asks around 20,000
HHs about their participation in the labour market.
 As part of this survey, the GSO groups people aged 15 years &
over (the working-age population) into 3 broad categories:
- Employed
- Unemployed
- Not in the labour force.

4
 3/31/2023

Identifying Unemployment
Computation method

§ Once the number of people in each of these categories

has been estimated, the following labour market
indicators can be calculated:
 Labour force
 Unemployment rate
 Participation rate

Identifying Unemployment
Concepts (continued)

§ Labour force is the sum of employed & unemployed

people.
§ Unemployment rate is the percentage of people in the
labour force that are unemployed.
Number of unemployed
Unemployment rate = × 100
Labor force

 Unemployment rate is affected by changes in the number of

unemployed people, which can result from
- Cyclical factors, such as the number of people who become
unemployed because of an economic downturn,
- Or structural factors in the economy.
 It is also affected by changes in the size of the labour force.

10

5
 3/31/2023

Identifying Unemployment
Concepts (continued)

§ Participation rate is the percentage of people in the

working-age population that are in the labour force.
Labor force
Participation rate = × 100
Working−age population
 Labour force participation typically moves with the business cycle.
- When businesses are hiring more workers & offering higher wages,
the incentives are greater to actively look for work.
- In contrast, when businesses are not hiring & offering smaller wage
increases, there is less of an incentive for people to look for work.
 There are also structural influences that are independent of the
business cycle.
- More opportunities to work part time
- An increase in the number of females looking for work
- People working for longer as they delay their retirement. 11

Identifying Unemployment
Concepts (continued)

Lực lượng lao động theo quý, giai đoạn 2020 – 2022

Đơn vị tính: Triệu người

Source: GSO (2022)

12

6
 3/31/2023

Identifying Unemployment
Concepts (continued)

Số lao động có việc làm quý III và quý IV, giai đoạn 2019-2022

Đơn vị tính: Nghìn người

Source: GSO (2022)

13

Identifying Unemployment
Concepts (continued)

Số người & tỷ lệ thiếu việc làm trong độ tuổi lao động theo quý, 2020-2022

Source: GSO (2022)

14

7
 3/31/2023

Identifying Unemployment
Concepts (continued)

Số người & tỷ lệ thất nghiệp trong độ tuổi lao động theo quý, 2020-2022

Source: GSO (2022)

15

Main Types of Unemployment

Cyclical unemployment

§ There are three main types of unemployment – cyclical,

structural & frictional unemployment.
 In practice, these cannot be measured directly.
 And, they can often overlap.
 But they provide a useful way of thinking about unemployment.

16

8
 3/31/2023

Main Types of Unemployment

Cyclical unemployment

§ Cyclical unemployment occurs with changes in economic

activity over the business cycle.
§ Cause
 During an economic downturn, a shortfall of demand for g & s
results in a lack of jobs being available for those who want to
work.
- Businesses experiencing weaker demand might reduce the amount
of people they employ by laying off existing workers, or hiring fewer
new workers.
- As a result, people looking for work will also find it harder to become
employed.
 The opposite situation occurs when demand strengthens.

17

Main Types of Unemployment

Cyclical unemployment

§ An increase in cyclical unemployment might suggest the

economy is operating below its potential.
 With more people competing for jobs, businesses might offer
lower wage increases, which would contribute to lower inflation.
 Policies that stimulate aggregate demand, such as loosening
monetary policy, can help reduce this type of unemployment.
- Because businesses experiencing stronger demand are likely to
employ more people.

§ Cyclical unemployment is often described as being short

term in nature
 3-12 months

18

9
 3/31/2023

Main Types of Unemployment

Structural unemployment

§ Structural unemployment occurs because the number of

jobs available in some labor markets is insufficient to
provide a job for everyone who wants one.
§ Causes
 Wages may be kept above equilibrium level because of
- Minimum-wage laws
- Unions & collective bargaining
- Theory of efficiency wages
 If the wage is kept above the equilibrium level, the result would be
unemployment.

19

Main Types of Unemployment

Structural unemployment

§ Causes

20

10
 3/31/2023

Main Types of Unemployment

Structural unemployment

§ Other causes
 Declining industries
- Workers may become unemployed if they work in industries that are
declining in size.
 Technological advances
- Workers may become unemployed if they have skills that could be
automated as a result of large-scale technological advances.
 Regional imbalance development
- It may be difficult for them to move to a region that has more job
opportunities.

21

Main Types of Unemployment

Structural unemployment

§ Structural unemployment tends to be longer lasting than

other types of unemployment.
 Workers who are unemployed because of structural factors are
more likely to face long-term unemployment.
- For more than 12 months

§ In contrast to cyclical unemployment, structural

unemployment exists even when economic conditions are
good.

22

11
 3/31/2023

Main Types of Unemployment

Frictional unemployment

§ Frictional unemployment occurs because it takes time &

effort for workers to search for the right job.
 As a result, people looking for jobs are not matched immediately
with vacancies & may experience a period of temporary
unemployment.

§ Causes
 Job seekers after graduation or military service
 Job hopping
 Job breaks
 Residence relocation
 Sectoral shifts
 Unemployment insurance
23

Main Types of Unemployment

Frictional unemployment

§ Frictional unemployment is shorter term.

 Less than 3 months

§ It is likely to occur at all points of the business cycle.

 And, like structual unemployment, it may not influence wages or
inflation.

24

12
 3/31/2023

Main Types of Unemployment

Interdependence between three types of unemployment

§ These three main types of unemployment are not

independent of each other.
 For example, a period of high cyclical unemployment might lift
structural unemployment.
- This could occur when people are unemployed for such a long
period that their skills & productivity deteriorate.
- And they become seen as being less employable, reducing the
probability that they will be hired in the future.

25

Main Types of Unemployment

Other types of unemployment

§ There are some other types of unemployment that are

also important to consider.
 In particular, underemployment rate can be thought of as
- A complementary indicator to the unemployment rate when thinking
about conditions in the labour market.

26

13
 3/31/2023

Main Types of Unemployment

Other types of unemployment

§ Underemployment occurs when people are employed, but

would like & are available to work more hours.
 There are two categories of underemployed people defined by
the GSO.
- Part-time workers who would prefer to work additional hours.
- People who usually work full time, but are currently working part-
time hours.
 Underemployment rates are generally higher among groups that
have a larger proportion of people working part time, such as
- Females
- Younger workers
- Older workers.

27

Main Types of Unemployment

Other types of unemployment

§ Hidden unemployment occurs when people are not

counted as unemployed in the formal GSO labour market
statistics, but would probably work if they had the chance.
 For example, someone might have looked for work for a long time,
given up hope & stopped looking, but still wish to work.
- These people are sometimes referred to as ‘discouraged workers’.

28

14
 3/31/2023

Main Types of Unemployment

Other types of unemployment

§ Seasonal unemployment occurs at different points over

the year because of seasonal patterns that affect jobs.
 Some examples include
- Fishermen
- Fruit pickers
- Holiday-related jobs.
 The GSO publishes seasonally adjusted labour market statistics,
which remove seasonal patterns in the data.

29

Natural Unemployment
Concepts

§ Natural unemployment is the sum of structural

unemployment & frictional unemployment.
 “Natutal” means this type of unemployment is
- Always there at any point of time
- And occurs at all points of the business cycle.
 Natural rate of unemployment is the normal rate of unemployment
around which the unemployment rate fluctuates.
- Natural rate of unemployment occurs when output is at its potential,
or natural, level.

30

15
 3/31/2023

Natural Unemployment
Relationship with actual & cyclical unemployments

§ When economy operates below its potential

 Cyclical unemployment occurs.
Unemployment rate = Natural rate of unemployment

+ Cyclical unemployment rate

§ When economy operates above its potential

 Part of the natural unemployment is quickly & easily recruited.
Unemployment rate < Natural rate of unemployment

§ When economy operates at its potential

 Full-employment is achieved.
Unemployment rate ≡ Natural rate of unemployment

31

Natural Unemployment
Relationship with actual & cyclical unemployments

32

16