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    Lecture 4: Measuring Economic Performance: Unemployment Tucker, Chapter 6

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    Lecture 4: Measuring Economic Performance: Unemployment Tucker, Chapter 6

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    OlebogengP
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    Lecture 4 (Unemployment)

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    Lecture 4: Measuring Economic Performance: Unemployment Tucker, Chapter 6

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    Lecture 4: Measuring economic

    performance: Unemployment
    Tucker, Chapter 6

    +27 (0)51 401 3406 • e-mail: camphercs@ufs.ac.za • www.ufs.ac.za


    OUTCOMES

    • Define unemployment.
    • Calculate Unemployment rate
    • Identify the 4 types of unemployment.
    • Know other important employment concepts like
    underemployment, self-employment, informal employment, full
    employment (natural rate of unemployment)
    • Briefly explain the problems with calculating unemployment
    rate
    DEFINITION OF UNEMPLOYMENT
    1. Strict definition
    Official – used by Stats SA, requirements:
    a) Between 15 – 64 years
    b) Does NOT find work
    c) Willing and able to work
    d) HAVE TAKEN ACTIVE STEPS TO FIND EMPLOYMENT (
    thus excluding discouraged)
    2. Expanded definition
     Used by unions, economists, journalists etc.
     a to c not d!!!!!!
    Population, Employment and Unemployment
    Working age population i.e. 15 – 64 years of age

    Not in labour force: Labour force or


    - Students economically active
    - Household workers population
    - Institutionalized persons
    Employed: Unemployed:
    - Employees - New entrants
    - Self-employed workers - Lost last job
    - Quit last job
    - Laid off

    Strict definition: Expanded definition:


    - Between 15-64 years - Between 15-64 years
    - Does not find job - Does not find job
    - Willing and able to work - Willing and able to work
    - Have taken steps to find job
    ECONOMICALLY ACTIVE POPULATION (EAP):

    • Total number of people who are between the ages of


    15 and 65 years who present their labour for the
    production of economic goods and services, whether
    employed or not.
    • % of working age population that is working OR want
    to work

    • SUPPLY = ECONOMICALLY = LABOUR


    OF ACTIVE FORCE
    LABOUR POPULATION
    ECONOMICALLY ACTIVE POPULATION
    =
    Workers in the formal sector
    +
    Self-employed persons
    +
    Informal sector workers
    +
    Unemployed persons
    HOW IS UNEMPLOYMENT CALCULATED?

    • Each adult (15-64 years of age) is placed into one of


    three categories:
    - Employed
    - Unemployed
    - Not in the labour force
    • The Labour force is the total number of workers,
    including both the unemployed and the employed.
    HOW IS UNEMPLOYMENT CALCULATED?

    • The unemployment rate is calculated as the percentage of


    the labour force that is unemployed.
    • Unemployment rate = [Number of unemployed/ Labour
    force] x 100

    • The Labour force participation rate (LFPR) is the


    percentage of the adult population that is in the labour
    force
    • Labour force part rate = [Labour force/ Adult pop] x 100
    EXAMPLE

    • Unemployment rate = [Number of unemployed /


    Labour force] x 100
    • Adult population = 47.4 million
    • Employed = 28.4 million
    • Unemployed = 1.4 million
    • Economically inactive = 17.6 million

    What is the labour force?


    What is the unemployment rate?
    EXAMPLE

    • Labour force = Employed + Unemployed


    = 28.4 million + 1.4 million
    = 29.8 million

    Unemployment rate
    = [Number of unemployed/ Labour force] x 100
    = [1.4 million/ 29.8 million] x 100
    = 4.70%
    2019 Q1 – 2019 Q3 LABOUR
    FORCE STRUCTURE
    2019 Unemployment rate in South
    Africa between 1st Quarter & 3rd
    Quarter

    • From the picture in the previous slide:


    1. Confirm the official unemployment rate
    given
    2. Calculate the expanded unemployment rate
    Unemployment trend over time in South Africa.

    Source: Statistics South Africa, 2019


    TYPES OF UNEMPLOYMENT:

    1. Seasonal
    2. Frictional
    3. Cyclical
    4. Structural
    Frictional Unemployment

    • Caused by people being between jobs


    • When a person resigns from his/her job to move to a
    different part of the country
    • Unemployed out of choice
    • Thus the Normal search time required by workers
    with marketable skills who are changing jobs,
    entering, or re-entering the labor force
    • New graduates searching are part of this
    Seasonal Unemployment

    • Some parts of the economy only need labour


    during certain times of the year
    • E.g. lifeguards, agriculture
    Cyclical
    Unemployment
    • Caused by changes in the level of aggregate output in the economy
    • Booms and recessions (economic growth)
    • E.g. during recession people will be retrenched
    • Serious type of unemployment
    Structural
    Unemployment
    • Is generally a long-term situation
    • Changes in the structure of the economy may create the
    following cases:
    i. Workers face joblessness as they lack the education or the job-
    related skills to perform available jobs
    ii. Change in tastes and preferences may shift demand and affect
    workers e.g. Increase in demand for Porsches and decease in
    demand for Toyotas.
    iii. Implementation of latest technology e.g. cell phone banking.
    iv. Globalisation e.g. outsourcing or offshoring
    • So structural unemployment is a result of mismatch of skills
    and/or use of labour-saving technology.
    TYPES OF UNEMPLOYMENT - example
    Read the situations presented below and identify the type of
    unemployment each situation represents:
    1. A robot has replaced an unemployed autoworker
    2. A Bloemfontein construction worker has been temporarily
    laid off because the building project at UFS is over.
    3. A steelworker is laid off because of a long recession
    4. A computer programmer quits her job in Pretoria to look
    for a new job in East London
    5. A stores clerk loses her job because sales are slow during a
    business slump.
    6. A high school dropout applies for several jobs but is told
    each time that he is not qualified
    7. An unemployed college graduate is looking for her first job
    Other important employment concepts:

    • Self-employment:
    • People have their own businesses which provide employment
    for themselves.
    • Do not employ anyone else e.g. lawyers, personal trainers.
    • Underemployment:
    • When a person works part time but really wants to work full
    time
    • Or when a person’s skills are not fully used in his job
    • E.g. architect working as a dishwasher
    • Informal sector employment:
    • Firms that do not register themselves as employers or
    taxpayers. e.g. “shebeen” owners, backyard mechanics
    Other important employment concepts continued:
    Full employment
    • When the economy experiences natural rate of unemployment.
    • When there is no cyclical unemployment i.e. unemployment that
    fluctuates with business cycles
    • At full employment, then
    GDP gap = actual GDP – potential GDP = 0
    • GDP gap measures the cost of cyclical unemployment
    • So full employment is when the economy’s unemployment rate is
    equal to the sum of frictional and structural unemployment rate.
    • By definition, it is possible to have a lot of unemployment (in form of
    structural and frictional) at full employment.
    Formal and Informal Sector:

    • FORMAL SECTOR • INFORMAL SECTOR


    – Organised, – Unorganised,
    – regulated and – unregulated and
    – registered economic – mostly legal but
    activities – unregistered economic
    activities
    – individually or family owned
    – simple labour intensive
    technology
    Why informal?

    • Coping strategies (survival activities):


    casual jobs, temporary jobs, unpaid jobs, subsistence agriculture
    • Unofficial earning strategies (illegality in business):
    – Unofficial business activities:
    • tax evasion,
    • avoidance of labor regulation & other government or institutional
    regulations,
    • no registration of company;
    – Underground activities:
    • crime,
    • corruption
    Problems with calculating unemployment:

    • Registration
    • Samples – can not see every one
    • Informal sector
    • Discouraged workers
    • Does not measure underemployment
    • Unemployment is an estimate
    Next Lecture
    • Keynesian Model of Income Determination
    • Tucker Chapter 8 & 9
    Thank you / Dankie

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