AP Macroeconomics: Labor and Unemployment - The Night Before 🌃

Hey! Let's get you prepped and confident for your AP Macro exam. We're going to break down labor and unemployment, making sure everything clicks. No stress, just clear concepts and smart strategies. Let's do this!

1. Labor Force: Who's In and Who's Out?

What is the Labor Force?

The labor force includes everyone who is employed or actively seeking employment. Think of it as the pool of people ready and able to work.

• Who's In?
  • People 16+ years old
  • Those with jobs
  • Those actively looking for work
• Who's Out?
  • Military personnel
  • Institutionalized individuals
  • Retirees
  • Students (not actively seeking work)
  • Discouraged workers: People who want to work but have given up looking. They're not counted in the labor force.

Labor Force Participation Rate

This tells us what percentage of the population is in the labor force.

• Formula: (Labor Force / Total Population) x 100
• Why it matters: It shows how much of the potential workforce is actually engaged in the job market.

How Do We Measure It?

• Household surveys: Ask people about their job status.
• Employer surveys: Ask companies about their payrolls.

2. Unemployment: Counting Who's Out of Work

What is the Unemployment Rate?

The unemployment rate is the percentage of the labor force that is unemployed (actively seeking work but without a job).

• Formula: (Number of Unemployed / Labor Force) x 100

Examples:

Let's look at the examples from the notes.

Germany

• 2017: 5 million unemployed / 50 million in labor force = 10% unemployment
• 2018: 15 million unemployed / 100 million in labor force = 15% unemployment

Italy

• 2017: 8 million unemployed / 160 million in labor force = 5% unemployment
• 2018: 7 million unemployed / 100 million in labor force = 7% unemployment

3. Types of Unemployment: Why People Are Out of Work

Frictional Unemployment

• Definition: Temporary unemployment as people move between jobs or enter the workforce.
• Examples:
  • Recent grads looking for their first job
  • People quitting to find a better job
• Is it bad? No, it's a normal part of a healthy economy. It shows that people are actively seeking better opportunities.

Structural Unemployment

• Definition: Unemployment due to a mismatch between worker skills and available jobs.
• Examples:
  • Typewriter repairmen in the age of computers.
  • Workers in a declining industry whose skills are no longer needed.
• Is it bad? Yes, it can be long-term and requires retraining or new skills.

Cyclical Unemployment

• Definition: Unemployment caused by economic downturns or recessions.
• Examples:
  • Layoffs due to decreased demand during a recession.
• Is it bad? Yes, it's a sign of a struggling economy.