SEU Decrease in The Unemployment Discussion
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Discussion Topic # 2
Unemployment
A countrys economic performance is measured using three key indicators, one of which is
the unemployment rate. When adults who are willing and able to work cannot find a job, it may
be a sign that an economy is producing less than it could. On the other hand, unemployment is
also a natural phenomenon that even healthy economies experience. While the official
unemployment rate is helpful in representing the state of a nations workforce, it does have some
shortcomings that should be considered, such as excluding discouraged workers.
There are three types of unemployment that economists describe: frictional, structural,
and cyclical. During recessions and expansions, the amount of cyclical unemployment changes.
Cyclical unemployment is closely related to the business cycle, and causes the deviations of the
current rate of unemployment away from the natural rate of unemployment.
The labor force participation rate (LFPR)
The labor force participation rate (LFPR) is another measure of labor market activity in the
economy. The LFPR is the percentage of the adult population that is in the labor force. The labor
force includes everyone who is either employed or unemployed. The adult population is defined
as anyone who is over the age of 16 who potentially could be part of the labor force. Anyone
who is less than 16 years old, is in the military, or is institutionalized is not considered to be
potentially part of the labor force and is excluded from this calculation.
When people enter the labor force the LFPR increases, and when people exit the labor force the
LFPR decreases. A decrease in the LFPR that occurs at the same time as a decrease in the
unemployment rate can signal that there are more discouraged workers.
Limitations of the unemployment rate
The unemployment rate as it is measured officially is often criticized for understating the level of
joblessness because it excludes anyone working at all or people who arent looking for work. In
particular, the official unemployment rate leaves out discouraged workers and the
underemployed. People who have given up looking for work because they are convinced that
they cannot find jobs are considered discouraged workers. Some people are counted as employed
because they are working part-time, even though they really want full-time work.
Three types of unemployment
Economists primarily focus on three types of unemployment: cyclical, frictional, and structural.
Cyclical unemployment is the unemployment associated with the ups and downs of the business
cycle. During recessions, cyclical unemployment increases and drives up the unemployment rate.
During expansions, cyclical unemployment decreases and drives down the unemployment rate.
The natural rate of unemployment
The natural rate of unemployment (NRU) is the unemployment rate that exists when the
economy produces full-employment real output. NRU is equal to the sum of frictional and
structural unemployment. When an economy is producing an efficient amount of output
(meaning it is operating on its PPC), the unemployment rate will be equal to the natural rate of
unemployment. Even though an economy may be operating efficiently, there will still be some
unemployment. Because of that, the natural rate of unemployment is never equal to zero.
Changes in the natural rate of unemployment (NRU)
The natural rate of unemployment (NRU) can gradually change over time due to events such as
changes in labor force characteristics. The NRU can change due to changes in structural and
frictional unemployment. For example, a firm may want to hire fewer workers because the skills
of those workers are not needed as much as they used to be. That will cause more structural
unemployment, and the natural rate of unemployment will increase.
Discussion Topic # 2
Explain with relevant data sources from
https://www.statista.com/statistics/262524/unemployment-rate-in-saudi-arabia/ .
If a decrease in the unemployment rate isn’t necessarily a sign of an improving.
Saudi Arabia unemployment
rate from 1998 to
2018 | Statista
In 2018, Saudi Arabia’s
estimated unemployment
rate amounted to
approximately 5.92 percent.
This increase is up .03
percent from the year
before.
www.statista.com
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