In later chapters, we will learn about cyclical unemployment, the short-term fluctuations in unemployment associated with business cycles.
The unemployment rate is the percentage of those who would like to work who do not have jobs.
Unemployment and labor force participation vary widely across demographic groups.
The natural rate of unemployment is the normal rate of unemployment around which the actual rate fluctuates. Cyclical unemployment is the deviation of unemployment from its natural rate, and is connected to short-term economic fluctuations.
The natural rate includes frictional unemployment and structural unemployment.
Frictional unemployment occurs when workers take time to search for the right jobs.
Structural unemployment occurs when above- equilibrium wages result in a surplus of labor.
Three reasons for above-equilibrium wages include minimum wage laws, unions, and efficiency wages.
Business Cycles: Introduction
Over the long run, real GDP grows about 3% per year on average.
In the short run, GDP fluctuates around its trend.
recessions: periods of falling real incomes and rising unemployment
depressions: severe recessions (very rare)
Short-run economic fluctuations are often called business cycles.