Worth: Mankiw Economics 5e CHAPTER 6 Unemployment |15 worker is either employed or unemployed, the labor force is the sum of the em- ployed and the unemployed L=E+U In this notation, the rate of unemployment is U/L. To see what determines the unemployment rate, we assume that the labor force L is fixed and focus on the transition of individuals in the labor force be- tween employment and unemployment. This is illustrated in Figure 6-2. Let s de- note the rate of job separation, the fraction of employed individuals who lose their job each month. Let f denote the rate of job finding, the fraction of unem- ployed individuals who find a job each month. Together, the rate of job separa tion s and the rate of job finding f determine the rate of unemployment If the unemployment rate is neither rising nor falling--that is, if the labor mar- ket is in a steady state-then the number of people finding jobs must equal the number of people losing jobs. The number of people finding jobs is fU and the number of people losing jobs is sE, so we can write the steady-state condition as fU=SE. We can use this equation to find the steady-state unemployment rate. From an earlier equation, we know that E=L- U; that is, the number of employed equals the labor force minus the number of unemployed. If we substitute(L-U for E in the steady-state condition, we find fU=s(I Job Separation(s) Job Finding(f) The Transitions Between Employment and Unemployment In every period, a fraction s of the employed lose their jobs, and a fraction fof the unemployed find jobs. The rates of job separation and job finding determine the rate of unemployment. User JOENA: Job EFF01422: 6264_ch06: Pg 157: 26228#/eps at 100s wed,Feb13,20029:364MUser JOEWA:Job EFF01422:6264_ch06:Pg 157:26228#/eps at 100% *26228* Wed, Feb 13, 2002 9:36 AM worker is either employed or unemployed, the labor force is the sum of the em￾ployed and the unemployed: L = E + U. In this notation, the rate of unemployment is U/L. To see what determines the unemployment rate, we assume that the labor force L is fixed and focus on the transition of individuals in the labor force be￾tween employment and unemployment.This is illustrated in Figure 6-2. Let s de￾note the rate of job separation, the fraction of employed individuals who lose their job each month. Let f denote the rate of job finding, the fraction of unem￾ployed individuals who find a job each month.Together, the rate of job separa￾tion s and the rate of job finding f determine the rate of unemployment. If the unemployment rate is neither rising nor falling—that is, if the labor mar￾ket is in a steady state—then the number of people finding jobs must equal the number of people losing jobs.The number of people finding jobs is f U and the number of people losing jobs is sE, so we can write the steady-state condition as f U = sE. We can use this equation to find the steady-state unemployment rate. From an earlier equation, we know that E = L − U; that is, the number of employed equals the labor force minus the number of unemployed. If we substitute (L − U) for E in the steady-state condition, we find f U = s(L − U). CHAPTER 6 Unemployment | 157 figure 6-2 Job Separation (s) Job Finding (f ) Employed Unemployed The Transitions Between Employment and Unemployment In every period, a fraction s of the employed lose their jobs, and a fraction f of the unemployed find jobs. The rates of job separation and job finding determine the rate of unemployment