1. Chapter 29
!
Unemployment

2. Key Terms
labor force
unemployment rate
labor-force participation rate
natural rate of unemployment
cyclical unemployment
discouraged workers
frictional unemployment
structural unemployment
job search
unemployment insurance
union
collective bargaining
strike
efficiency wages

3. Unemployment
How is it measured?
Who measures it?
Central Department of Statistics and
Information
!
www.cdsi.gov.sa

4. Total Population
Not Adult Population
Adult Population 15+
Not in Labor Force
Labor Force
Employed
Unemployed

5. Population30
Saudis20
Adult Saudis
15+
14
Labor Force5.3
Employed
4.7
Labor Force
Participation Rate
Labor Force÷ Adult Saudis
5.3 ÷ 14 = 37.9%
Unemployment Rate
Unemployed ÷ Labor Force
0.6 ÷ 5.3 = 11.7%
Unemployed 0.6
0.6

6. Employed
paid employees
work in own business
unpaid workers in family business
full-time and part-time
jobs but temporary absence

7. Unemployed
not employed
available
tried to find a job in the last four
weeks
waiting to be recalled from layoff

8. Discouraged
Workers
People who would like
to work but have given
up looking for a job

9. Not in Labor Force
not employed or unemployed
discouraged workers
full-time student
homemaker
retiree

10. Unemployment Rate
The percentage of the
labor force that is
unemployed

11. Adult Population
Population age 15
and older

12. Labor-Force
Participation Rate
The percentage of the
adult population (15+)
that is in the labor force

13. Employed 4,717,127
Unemployed 622,533
Labor Force
= Employed + Unemployed
5,339,660
Unemployment Rate
= Unemployed ÷ Labor Force
11.7%
Not in Labor Force 8,660,340
Adult Population Age 15+
= Labor Force + Not in Labor Force
14,000,000
Participation Rate
= Labor Force ÷ Adult Population
38%
Source: General Statistics Department and Information
Saudi Labor Force

14. Saudi Adult Population 15+
14 million
Not in Labor Force
Unemployed
EmployedLabor Force
Unemployed + Employed
38%
62%

15. Employment Analysis Male Female Total
Employed 3,989,632 727,495 4,717,127
Unemployed 261,392 361,141 622,533
Labor Force 4,251,024 1,088,636 5,339,660
Unemployment Rate 6.1% 33.2% 11.7%
Adult Population 7,000,000 7,000,000 14,000,000
Participation Rate 61% 16% 38%

16. Employment
Analysis
Saudi Non-Saudi Total
Employed 4,717,127 6,011,996 10,729,123
Unemployed 622,533 10,114 632,647
Labor Force 5,339,660 6,022,110 11,361,770
Unemployment
Rate
11.7% 0.2% 5.6%

17. Problems
Overstate - Above actual
Cash workers
!
Understate - Below actual
Discouraged workers

18. Country
Comparison
Saudi U.S China
Unemployment Rate 11.7% 7.9% 4.1%
Participation Rate 38.0% 63.3% 74.2%

19. Natural Rate of
Unemployment
The normal rate of
unemployment around
which the unemployment
rate fluctuates

20. Cyclical
Unemployment
The deviation of
unemployment from its
natural rate

21. Unemployment
Frictional
Seasonal
Structural
!

22. Frictional
Time to find a new job
!

23. Seasonal
Demand changes with
the season
!

24. Structural
Too many workers
!
Change in demand for
skills

28. Structural
Creative Destruction
!
10% aYear

29. Unemployment
Insurance
Government program to
provide income when
workers become
unemployed

30. Unemployment
Insurance
Unintended Consequence
Moral Hazard
May prolong unemployment

31. Why are wages too
high?
Minimum wage laws
Unions
Efficiency Wages
!

32. Minimum Wage Laws
Government sets a
minimum wage that can
legally be paid

33. 0
1,000
2,000
3,000
4,000
0 10 20 30 40 50 60
Supply
Demand
Wage
Workers
Equilibrium
Wage
30 workers
30 jobs
no
unemployment
Minimum Wage
40 workers
20 jobs
20 unemployed
workers
Minimum Wage
20 workers
get a raise
10 workers
lose job
10 new
unemployed
workers
Minimum
Wage

34. Efficiency Wages
Higher wages make
more productive
employees

35. Efficiency Wages
Employee Wage Pizzas Productivity
Wage per Pizza
Ali 100 5 20.0
Abdullah 200 12 16.7

36. Efficiency Wages
More Healthy
Lower Turnover
Higher Quality
More Effort