A Note on the Categories of Unemployment in a Principles of Macroeconomics Course

William Levernier and Bill Z. Yang
    This note articulates that the commonly‐used term “structural unemployment” due to a decrease in labor demand in an industry or region essentially means “sectoral shift” – an extreme case of frictional unemployment, by definition. It suggests that structural unemployment be defined based on job rationing when the wage rate is downward rigid. This note also strives to spell out a logical sequence to bring in concepts of natural rate of unemployment and cyclical unemployment when these two terms are usually introduced together in a Principles of Macroeconomics course. Finally, it presents an exercise that instructors can utilize to clearly demonstrate to students how the cyclical unemployment rate can be measured.

Full PDF File