AP_Krugman_Textbook

2000, when the unemployment rate was only 4%. Forty-five percent of the unemployed

had been unemployed for less than 5 weeks and only 23% had been unemployed for 15

or more weeks. Just 11% were considered to be “long - term unemployed”—unemployed

for 27 or more weeks. The picture looked very different in January 2010, after unem-

ployment had been high for an extended period of time.

In periods of higher unemployment, workers tend to be jobless for longer periods of

time, suggesting that a smaller share of unemployment is frictional. By early 2010,

when unemployment had been high for several months, for instance, the fraction of

unemployed workers considered “long -term unemployed” had jumped to 41%.

Structural Unemployment

Frictional unemployment exists even when the number of people seeking jobs is equal

to the number of jobs being offered—that is, the existence of frictional unemployment

doesn’t mean that there is a surplus of labor. Sometimes, however, there is a persistent sur-

plusof job -seekers in a particular labor market. For example, there may be more workers

with a particular skill than there are jobs available using that skill, or there may be more

workers in a particular geographic region than there are jobs available in that region.

Structural unemploymentis unemployment that results when there are more people

seeking jobs in a labor market than there are jobs available at the current wage rate.

The supply and demand model tells us that the price of a good, service, or factor of

production tends to move toward an equilibrium level that matches the quantity sup-

plied with the quantity demanded. This is equally true, in general, of labor markets.

Figure 13.2 shows a typical market for labor. The labor demand curve indicates that

when the price of labor—the wage rate—increases, employers demand less labor. The

labor supply curve indicates that when the price of labor increases, more workers are

willing to supply labor at the prevailing wage rate. These two forces coincide to lead to

an equilibrium wage rate for any given type of labor in a particular location. That equi-

librium wage rate is shown as WE.

Even at the equilibrium wage rate, WE,there will still be some frictional unemploy-

ment. That’s because there will always be some workers engaged in job search even when

the number of jobs available is equal to the number of workers seeking jobs. But there

wouldn’t be any structural unemployment in this labor market. Structural unemployment

128 section 3 Measurement of Economic Performance

figure 13.2

The Effect of a Minimum

Wage on the Labor Market

When the government sets a minimum

wage, WF,that exceeds the market

equilibrium wage rate, WE,the number of

workers, QS,who would like to work at that

minimum wage is greater than the number

of workers, QD,demanded at that wage rate.

This surplus of labor is considered structural

unemployment.

Wage

rate

Quantity of labor

Labor supply

Labor demand

Structural

unemployment

Minimum

wage

WF

QD QE

E

QS

WE

Structural unemploymentis
unemployment that results when there are
more people seeking jobs in a labor market
than there are jobs available at the current
wage rate.