Economic and NON Economic Costs OF Unemployment PDF

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CHAPTER 26 BUSI NESSCYCLES,UNEMPLOYMENT AND I NFLATI ON

Measur i ngt heUnempl oymentRat e Thel aborf or cei st heac t ualnumberofpe opl eavai l abl ef orwor k;e conomi st s us et hel aborf or cepar t i ci pat i onr at et ode t e r mi net heunempl oyme ntr at e . LEARNI NG OBJECTI VES Cl ass i f yt hesi xmeasur e sofunempl oyme ntcal cul at e dbyt heBur eauofLabor St at i st i cs( BLS) KEY TAKEAWAYS KeyPoi nt s  Unempl oymentoc cur swhenpeopl ear ewi t houtwor kandar eac t i v el yseeki ng empl oyme nt . 

The r ear et hr eet ypesofunempl oyment :cycl i cal ,s t r uc t ur al ,andf r i c t i onal .

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TheCPSandCESar et wosur ve yst hatt heU. S.Bur eauofLaborSt at i s t i csuses t ode t e r mi net heune mpl oymentr at ef orhouse hol ds ,busi nesses,and gov er nme ntage nci es.

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TheU. S.Bur e auofLaborSt at i s t i csus essi xme asur ement swhencal cul at i ng t heunempl oymentr at e .Themeasur esr angef r om U1–U6andwe r er e por t e d f r om 1950t hr ough2010.Theycal c ul at edi ffer entaspe ct sofunempl oyme nt .

KeyTer ms 

Unempl oyment :Thes t at eofbe i ngj obl essandl ooki ngf orwor k.

Unempl oymentRat e Unempl oymentoc cur swhenpeopl ear ewi t houtwor kandar eact i v el ys eeki ng empl oyme nt .I naneconomy ,t hel aborf or cei st heac t ualnumberofpeopl eav ai l abl e f orwor k.Economi s t suset hel aborf or cepar t i ci pat i onr at et ode t e r mi net he unempl oyme ntr at e . Unempl oymentcanbebr okendowni nt ot hr eet ypesofunempl oyment : 

Cyc l i calunempl oyment :occur swhent her ei snotenoughaggr egat edemandi n t heeconomyt opr ovi dej obsf orev er yonewhowant st owor k.

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St r uc t ur alunempl oyment :oc cur swhe nt hel abormar ke ti sunabl et opr ovi de j obsf orev er yonewhowant st owor k.The r ei sami smat chbe t weent hes ki l l sof t heunempl oy edwor ker sandt heski l l snec essar yf ort hej obsav ai l abl e.

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Fr i ct i onalune mpl oyment :t het i meper i odbe t we enj obswhenawor keri s l ooki ngf oraj obort r ansi t i oni ngf r om onej obt oanot her .

Measur i ngUnempl oyment TheU. S.Bur eauofLaborSt at i st i csme asur esempl oymentandunempl oymentf or i ndi vi dual sov ert heageof16.Theunempl oymentr at ei smeasur edusi ngt wodi ffer ent l aborf or cesur ve ys . 

TheCur r entPopul at i onSur v ey( CPS) :al soknownast he“ househol dsur vey” t heCPSi sconduc t edbasedonasampl eof60, 000house hol ds .Thesur vey me asur est heunempl oymentr at ebasedont heI LO defini t i on.

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TheCur r entEmpl oymentSt at i s t i csSur v ey( CES) :al soknownast he“ payr ol l sur ve y”t heCESi sc onduc t e dbasedonasampl eof160, 000bus i ness esand gov er nme ntage nci est hatr epr esent400, 000i ndi vi dualempl oy ees .

Theunempl oymentr at ei sal socal c ul at e dusi ngweekl ycl ai msr epor t sf orunempl oy ed i nsur ance .Thegov er nmentpr ovi de st hi sdat a.Theunempl oymentr at ei supdat edon amont hl ybasi s. Si xMeasur esofUnempl oyment TheU. S.Bur eauofLaborSt at i st i csus essi xme asur ement swhencal c ul at i ngt he unempl oyme ntr at e .Themeasur esr angef r om U1–U6andwe r er epor t e df r om 1950 t hr ough2010.Theycal c ul at edi ffer entas pect sofune mpl oyment .Themeasur esar e:

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U1:t heper cent ageofl aborf or ceunempl oy edf or15wee ksorl onger .

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U2:t heper cent ageofl aborf or cewhol os tj obsorcompl e t e dt e mpor ar ywor k.

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U3:t heoffic i alune mpl oymentr at et hatocc ur swhenpeopl ear ewi t houtj obs andt heyhav eac t i v el yl ookedf orwor kwi t hi nt hepastf ourwe eks .

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U4:t hei ndi vi dual sdescr i bedi nU3pl us“ di scour agedwor ker s, ”t hosewhohav e s t oppedl ooki ngf orwor kbe causecur r enteconomi ccondi t i onsmaket hem t hi nk t hatnowor ki sav ai l abl ef ort hem.

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U5:t hei ndi vi dual sdescr i bedi nU4pl usot her“ mar gi nal l yat t ac hedwor ker s, ” “ l oosel yat t achedwor ker s, ”ort hosewho“ woul dl i ke”andar eabl et owor k,but hav enotl ookedf orwor kr ecent l y .

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U6:t hei ndi vi dual sdescr i bedi nU5pl uspar t t i mewor ker swhowantt owor k f ul l t i me ,butcannotduet oeconomi cr easons ,pr i mar i l yunder empl oyment .

Shor t comi ngsoft heMeasur ement

Unempl oymenti snotanabsol ut ecal cul at i onandi ti spr onet oe r r or sandbi ases r el at e dt odat aassembl yandi nc onsi s t e nci esi nr epor t i ng. LEARNI NG OBJECTI VES Descr i bet her at esi nt heU. S.oft hosewhoar eempl oy ed,unempl oy ed,andnoti nt he l aborf or ce KEY TAKEAWAYS KeyPoi nt s 

Ther at eofunempl oymenti saper cent aget hati scal cul at e dbydi vi di ngt he numberofunempl oy edi ndi vi dual sbyt henumbe rofi ndi vi dual sc ur r ent l y empl oy edi nt hewor kf or ce .

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Ther at eofunempl oymenti scal c ul at e dusi ngf ourme t hods:t heLaborFor ce Sampl eSur veys,Offic i alEs t i mat es,Soci alI ns ur anceSt at i s t i cs,andEmpl oyment Offic eSt at i s t i cs .

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Themeasur ementofunempl oymentdoeshav esomeshor t c omi ngsbasedon whoi sandi snotmeasur ed.

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Bynoti nc l udi ngal lunde r empl oy edorunempl oy edi ndi vi dual si nt he me asur ementoft heunempl oymentr at e ,t hecal cul at i ondoesnotpr ovi dean accur at eassessme ntofhow unempl oyme ntt r ul yi mpac t ssoci e t y .

KeyTer ms  

Unempl oyment :Thes t at eofbe i ngj obl essandl ooki ngf orwor k. Laborf or ce:Thecol l ec t i v egr oupofpe opl ewhoar eavai l abl ef orempl oyment , i . e.i nc l udi ngbot ht heempl oy edandt heunempl oy ed.

Unempl oyment Unempl oyment ,al socal l edj obl e ssness,occur swhenpeopl ear ewi t houtwor kandar e act i ve l ysee ki nge mpl oyment .Unempl oymenti smeasur edi nor dert ode t er mi net he unempl oyme ntr at e .Ther at ei saper cent aget hati scal cul at e dbydi vi di ngt henumbe r ofunempl oy edi ndi vi dual sbyt henumberofi ndi vi dual scur r ent l yempl oy edi nt he l aborf or ce . Measur ement s I nor dert ofindt her at eofune mpl oyment ,f ourme t hodsar eused:

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LaborFor ceSampl eSur veys:pr ovi det hemos tc ompr ehensi ver esul t s. Cal cul at e sunempl oymentbydi ffer entcat e gor i essuc hasr aceandgender .Thi s me t hodi st hemos ti nt e r nat i onal l yc ompar abl e. Offici alEst i mat es:combi nesi nf or mat i onf r om t het hr eeot herme t hods.The me t hodi snott hepr e f er r edme t hodt ousewhencal cul at i ngt her at eof unempl oyme nt . Soci alI ns ur anceSt at i s t i cs:t heses t at i s t i csar ecal cul at edbasedont he numberofi ndi vi dual sr ecei vi ngune mpl oymentbe nefit s.Theme t hodi scr i t i c i z ed be caus eune mpl oymentbenefit scanexpi r ebe f or eani ndi vi dualfinds empl oyme ntwhi chmakest hecal c ul at i onsi naccur at e. Empl oymentOfficeSt at i st i cs:onl yi nc l udeamont hl yt ot alofunempl oy ed i ndi vi dual swhoe nt erune mpl oymentoffic es.Thi sme t hodi st hel easteffec t i v ef or me asur i ngune mpl oyment .

Measur ementShor t comi ngs Themeasur ementofunempl oymenti snotanabs ol ut ecal cul at i onandi spr onet o er r or s.Forexampl e,t heunempl oymentr at edoesnott akei nt oacc ounti ndi vi dual s whoar enotact i ve l ys eeki ngempl oyment ,suc hasi ndi vi dual sat t endi ngcol l e georeve n i ndi vi dual swhoar ei nU. S.pr i sons.I ndi vi dual swhoar esel f empl oy ed,t hosewhowe r e f or c edt ot akeear l yr e t i r ement ,t hosewi t hdi sabi l i t ype ns i onswhowoul dl i ket owor k, andt hosewhowor kpar t t i meandsee kf ul l t i meempl oyme ntar enotf act or edi nt ot he unempl oyme ntr at e.Somei ndi vi dual sal sochoosenott oent ert hel aborf or ceand t hesest at i s t i csar eal sonotconsi de r ed.Bynoti nc l udi ngal lunder empl oyedor unempl oy edi ndi vi dual si nt heme asur ementoft heunempl oymentr at e,t he cal cul at i ondoesnotpr ovi deanacc ur at eassessmentofhow unempl oymentt r ul y i mpac t ssoci e t y .Er r or sandbi asesar eal sopr esentduet odat aasse mbl yandr epor t i ng i nconsi s t enci es. Typi calLengt hsofUnempl oyment Shor t t er m une mpl oyme nti sanype r i odofj obl essnesst hatl as t sf ewert han27wee ks. Longt er m unempl oymentl as t s27ormor ewee ks. LEARNI NG OBJECTI VES Di st i ngui shbe t we ens hor t t er m andl ongt er m unempl oyme ntandt hei mpacton pe opl eandeconomy KEY TAKEAWAYS KeyPoi nt s 

Unempl oymentoc cur swhenpeopl ear ewi t houtwor kandar eact i v el yseeki ng empl oyme nt .

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Unempl oymenti mpact st heeconomyandsoci e t ybyi ncr easi ngi nequal i t y , i mpedi ngl ongt er m economi cgr owt h,was t i ngr esour ces,andr educi ngeconomi c effici ency .

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Unempl oymenti mpact si ndi vi dual sbecauset heyar enotabl et ome e tt hei r financi alobl i gat i onswhi c hcanl eadt opover t y ,poorl abormobi l i t y ,andl ow sel f es t eem.Unempl oymenti sal soknownt ocaus eci vi lunr es tandconfli c t .

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Unempl oymenti mpact si ndi vi dual sbecauset heyar enotabl et ome e tt hei r financi alobl i gat i onswhi c hcanl eadt opover t y ,poorl abormobi l i t y ,andl ow sel f es t eem.Unempl oymenti sal soknownt ocaus eci vi lunr es tandconfli c t .

KeyTer ms  

Unempl oyment :Thes t at eofbei ngj obl essandl ooki ngf orwor k. Pover t y:Thequal i t yorst at eofbei ngpoorori ndi gent ;wantorscar ci t yof me ansofsubs i s t ence;i ndi gence;ne ed.

Unempl oyment Unempl oyment ,al s or ef er r edt oasj obl essness,oc cur swhenpeopl ear ewi t houtwor k andac t i v el ys eeki ngempl oyment .Gene r al l y ,unempl oymenti shi ghdur i ngr ecessi ons. I ndi vi dual ss t r uggl et ofindwor kwhent her ear emor ej obseeker st hanvacant pos i t i ons. The r ear et hr eet ypesofunempl oyment : 

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Cycl i cal :occur swhent he r ei snotenoughaggr egat edemandi nt heeconomyt o pr ovi dej obsf ore ver yonewhowant st owor k.Thedemandf ormos tgoodsand ser vi cesde cl i nes ,l esspr oduc t i oni sneeded,andf ewe rwor ker sar eneeded. Wagesar es t i c kyanddonotf al lt omee tt hee qui l i br i um l ev e lwhi c hr esul t si n massunempl oyment . St r uct ur al :occur swhent hel abormar ke ti snotabl et opr ovi dej obsf or ev er yonewhowant st owor k.Ther ei sami smat chbe t weent heski l l soft he wor ker sandt hes ki l l sneededf ort hej obst hatar eav ai l abl e.St r uc t ur al unempl oyme nti ssi mi l art of r i c t i onalunempl oyment ,buti tl as t sl onge r . Fr i ct i onal :whenawor keri ssear chi ngf oraj obort r ansi t i oni ngf r om onej obt o anot her .Fr i c t i onalune mpl oymenti sal wayspr esenti naneconomy .

Lengt hsofUnempl oyment Shor t t er m une mpl oyme nti sconsi der edanyunempl oymentper i odt hatl as t sl esst han 27wee ks.Theune mpl oymentper i odi st empor ar yandof t eni ncl ude st het i meneede d t oswi t chf r om onej obt oanot her .Al so,i fani ndi vi duali ssear chi ngf orempl oyment t hesear c hper i odi sr el at i ve l yshor t .

Longt er m unempl oymenti sc l assi fiedasunempl oymentt hatl ast sf or27weeksor l onger .Bei ngunempl oy edf oral ongper i odoft i mecanhaves ubs t ant i ali mpact son i ndi vi dual s .Jobss ki l l s ,c er t i ficat i ons,andqual i ficat i onsl esse nov ert i me .Whent he j obmar ke tfinal l yi ncr easesmanyi ndi vi dual swi l lnol onge rmat c ht her equi r ement s f ort henew posi t i ons .Longt er m unempl oyme ntcanal sor esul ti nol derwor ker s t aki ngear l yr e t i r ement .

Aver age Lengt h of Unempl oyment : Thi s gr aph s hows t he av er age l engt h of unempl oyme nti nt he Uni t ed St at es f r om 19502010.Shor t t er m unempl oyme nti s c ons i der ed l ess t han 27 we eks,whi l el ongt er m unempl oyme nti sj obl ess ness t hat l as t s27weeksorl onge r . Soci alandI ndi vi dualI mpact s Unempl oymentcanhavel as t i ngi mpac t sofi ndi vi dualpeopl easwe l last heeconomy asawhol e . Soci al :Wi t hi nt heeconomy ,l ongt er m une mpl oymenti nc r easest hei nequal i t y pr esenti nt heeconomyandi mpedesl ongr uneconomi cgr owt h.Unempl oyment was t esr esour cesandgener at esr edi s t r i but i vepr essur esanddi st or t i onswi t hi n t heeconomy .Whenunempl oymenti shi gh,t heeconomyi snotusi ngal loft he av ai l abl er esour ces,s peci fical l yl abor .Unempl oyme ntcanal sor educ et he effici encyoft heec onomybecauseunempl oy edwor ker sar ewi l l i ngt oaccept empl oyme ntt hati sbel ow t hei rski l ll ev el .  I ndi vi dual :Fori ndi vi dualpeopl e,unempl oyme nti nc r easespov er t y ,cr eat es poorl abormobi l i t y ,andi mpac t ssel f e st eem.Wheni ndi vi dual sar eunempl oy ed t heyar eunabl et omee tt hei rfinanci alobl i gat i ons .I ti snotunc ommonf orsoci al unr estandc onfli c tt hatge twor sedur i ngt i mesofmassunempl oyment . Peopl eal soask How t heunempl oymentr at ei scal cul at ed? - Her e' st hef or mul af orcal cul at i ngi t :unempl oymentr at e=numberof unempl oyedper sons/l aborf or ce .Fi nal l y ,t hel aborf or c epar t i ci pat i onr at ei s 

t heper c ent ageoft hepopul at i ont hati si nt hel aborf or ce .Thef or mul ai sl abor f or c epar t i ci pat i onr at e=l aborf or ce/adul tpopul at i on.

Whyi si tdi ffic ul tt omeasur eune mpl oyme nt ? - Measur i ngunempl oymentaccur at e l yi smadedi fficul tbecauseofi mper f ect knowl edge .Notal li ns t anc esofunempl oymentar er ecor ded,andsomer ecor ds ofunempl oymentmaynotbeaccur at e.Becaus et heunempl oyedar ee l i gi bl e f orbenefit s,somei ndi vi dual smaywor k,butnotdi sc l osei t ,andcl ai m benefit . How doe st heI LO cal c ul at eune mpl oyment ? - I ti st her at et hati st hebes ti ndi cat or ,becausei tmeasur est hepr opor t i onof t heeconomi cal l yac t i v epopul at i onwhoar eunempl oyedandsot akesaccount ofc hangesi nt hesi z eoft hepopul at i onov ert i me ,aswe l lasc hangesi nt hel eve l ofunempl oyment .TheLabourFor ceSur v ey( LFS)measur esI LO unempl oyment . How doy oucal cul at eyourunempl oymentbenefit s? Cal cul at i ngyourweekl ybenefitamount -

St ep1:Li s ty ourt ot alwagesi nt hel ast4quar t er si nwhi c hyouwor ked.. . . St ep2:Addt het opt wohi ghes tquar t er sofwages.. . . St ep3:Di vi det hesum oft het wohi ghes tquar t er sf r om St ep2by26( t he numberofwee ksi nt hecombi nedquar t er s)

Whatar et het hr eet ypesofunempl oyment ? I nt hi sl ess on,expl or et het hr eet ypesofunempl oymenti ncl udi ngcycl i cal , f r i ct i onal ,ands t r uct ur alusi ngr eal wor l dexampl es. -

TypesofUnempl oyment .Ther ear et hr eemaj ort ypesofune mpl oyment i ncl udi ngc ycl i cal ,f r i c t i onal ,ands t r uct ur al .. . . Cyc l i calUnempl oyment .. . . Fr i ct i onalUnempl oyment .. . .

- St r uc t ur alUnempl oyment . How dot heycal cul at eunempl oymentbenefit s ? - Thi si st heper i odi nwhi c hwageswer ehi ghest .Di vi det heamountear ned dur i ngt hi squar t erby13,whi c hi st henumbe rofwee ksi nacal endarquar t er . Thest at ede t er mi nest heper cent ageoft hatwaget hatwi l lber epl aced.The weekl ywagei sdi vi de dandt hewee kl ybenefiti scal cul at edbasedont he weekl ywage . How doy oumeasur eunempl oyment ? - Theunempl oymentr at ei smeasur edusi ngt wodi ffer entl aborf or cesur veys. TheCur r entPopul at i onSur vey( CPS) :al soknownast he“ house hol dsur ve y” t heCPSi sconduc t edbase donasampl eof60, 000house hol ds .Thesur v ey me asur est heunempl oymentr at ebasedont heI LO defini t i on. 3RD REPORTER:CRI STALGEAN MARI MAT FULLEMPLOYMENT

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Meanst hatever y onewhowant saj ob can havewor k hour st heyneed on " f ai r wages" .Becaus e peopl e swi t c hj obs,f ul lempl oyment means a s t abl er at e ofunempl oyme ntar ound 1 t o 2 perc entoft het ot alwor kf or ce,butdoe snot al l ow f orunder empl oyme ntwhe r e par t t i me wor ker s cannotfind hour st hey needf oradec entl i vi ng. I n macr oeconomi cs,f ul lempl oyment i s some t i me s defined as t he l ev elof empl oyme ntatwhi cht he r ei snocyc l i calorde fici ent de mandunempl oyment .

Some economi s t sr e j ec tt hat f ul lempl oyment and s eei nflat i onas bei ng a l i ke l y c ons equenc e ofi t s enf or cement ,t o pr ev enti nflat i on f r om ac ce l er at i ng.Thi s vi ew i s based on a t heor ycent er ed on t hec onceptoft heNonAc ce l e r at i ngI nflat i on Rat eof Unempl oyment( NAI RU) ,andt hosewhohol di tus ual l ymean NAI RU when s peaki ngof ] f ul lempl oyme nt . The NAI RU has al so been descr i bed byMi l t on Fr i edman,among ot her s,ast he" nat ur al "r at eofunempl oyment .Havi ngmanynames,i thasal sobeen cal l edt hes t r uc t ur alunempl oymentr at e. 4TH REPORTER:MADELYN JANE M.I GNACI O ECONOMI C COSTSOF UNEMPLOYMENT Unempl oyment i s uni ver sal l yr ecogni z ed as a bad t hi ng. Whi l ee conomi s t s and ur all ev e l of acade mi cs make convi nci ng ar gument st hat t her ei s a cer t ai nnat unempl oyme ntt hatcannotbe er ased,e l evat ed une mpl oyme nti mposes si gni ficant c ost sont hei ndi vi dual ,t hesoci e t yandt hec ount r y .Wor seye t ,mos toft hecost sar eof t hedead l os svar i e t ywher et her ear eno offset t i ng g ai nst ot hecos t st hatev er yone must bear .( Dependi ng on how i t ' s me asur ed,t heunempl oyment r at ei s open t o i nt er pr e t at i on. 1.For t he i ndi vi dual ,t he gr eat esteconomi c cos t of unempl oymenti sl ost i ncome . 2.Forsoci e t y ,t hegr eat esteconomi c cos tofunempl oymenti st hedecr easei n goodsandser vi ces( out put )t hatocc ur sasar esul toft heunempl oyment . Economi s t scal lt hi ssacr i ficeofout puta GDP gap –adi ffer enc ebe t ween act ualand pot ent i alGDP.Thati s: GDPgap=( ac t ualGDP–pot ent i alGDP) TheGDPgapcan beei t hernegat i ve( act ualGDP pot ent i alGDP) .I nt he case ofunempl oyme ntabov et he nat ur alr at e,i ti s negat i v ebecauseact ualGDPf al l sshor tofpot ent i alGDP. Whati sNat ur alUnempl oyment ? Nat ur al une mpl oyment , or t he nat ur al r at e of une mpl oyment , i s t he mi ni mum une mpl oymentr at er esul t i ngf r om r eal ,orv ol unt ar y ,ec onomi cf or ces.I tcan al so bedefined ast hemi ni mum l ev e lofcal cul abl eunempl oymenti nt heWal r asi an sys t em ofge ner alequi l i br i um,af t eraccount i ngf orl aborandcommodi t ymoveme nt s,

mar ket i mper f ec t i ons , s t oc hast i c var i abi l i t y and ot her suppl y and demand c ons i der at i onsbui l ti nt ot hemode l . When i tcomes t o st udyi ng t he economy ,gr owt h and j obs ar et wo pr i mar yf act or s ec onomi s t smus tconsi der .Ther ei sa c l e arr e l at i onshi p be t ween t het wo,and many ec onomi s t s hav e f r ame d t he di scussi on by t r yi ng t o st udy t he r e l at i onshi p c gr owt hand unempl oyment l ev el s.Economi s t Ar t hur Okun fir s t be t weeneconomi s t ar t edt ackl i ngt hedi scussi oni nt he1960s,andhi sr esear chont hesubj ec thassi nc e sl aw.Be l ow i samor ede t ai l edov er vi ew ofOkun' sl aw,whyi t be comeknownasOkun' i si mpor t antandhow i ts t oodt het estoft i mesi nc efir stbei ngpubl i shed. Okun' sLaw:TheBasi cs I ni t smos tbasi cf or m,Okun' sl aw i nv es t i gat est hest at i st i calr el at i ons hi p be t ween a oymentr at eand t he gr owt hr at e ofi t s economy .The economi cs c ount r y' sunempl r esear c h ar m oft heFeder alReser v eBank ofSt .Loui sexpl ai nst hatOkun' sl aw " i s i nt endedt ot el lushow muc h ofacount r y' sgr ossdomes t i cpr oduc t( GDP)maybel os t when t heunempl oyme ntr at ei sabovei t snat ur alr at e. "I tgoeson t oexpl ai nt hat" t he l ogi cbe hi ndOkun' sl aw i ssi mpl e .Out putdepe ndsont heamountofl aborusedi nt he pr oduc t i on pr oc ess, so t her e i s a pos i t i ve r e l at i onshi p be t ween out put and empl oyme nt .Tot alempl oymentequal st hel aborf or cemi nust heunempl oy ed,sot her e i sanegat i v er el at i ons hi pbe t weenout putandunempl oyment( condi t i onalont hel abor f or c e) . " Yal epr of e ssorandeconomi st ,Ar t hurOkun,wasb...