1
$\begingroup$

On page 494, when discussing the natural rate of unemployment Mankiw states that the NRU is caculated by dividing job separation/job separation + job finding. See below:

"The NRU can be viewed as the rate of unemployment the economy gravitates to, given the number of people losing jobs over a period and the number finding work over that same period. Unemployment is a dynamic process. At any period of time, there are people losing jobs (called job separation) and people finding jobs. Suppose that every month, the rate at which people lose jobs, denoted by the Greek letter $\alpha$, is 4.9 per cent, and the rate at which people find jobs denoted by the Greek letter $\psi$, is 65 per cent. The NRU is found by taking the job separation rate and dividing this by the sum of the job finding rate and the job separation rate:"

What are these two measures ratios of? My gut feeling is:

  • Separation = #new redundancies/total labour force
  • Job finding = #people entering employment/total labour force or perhaps #newly filled vacancies / total labour force

BUT In the example above from Mankiw, the job finding rate is 65%. This would seem to be close to a typical value for the employment rate (employed persons/population over 15yrs).

So to repeat my question, how do we define these two rates? Is "job finding" a synonym for employment rate? Any help much appreciated.

Cheers

$\endgroup$
3
  • 1
    $\begingroup$ Just a guess: job finding could easily be #people entering employment/#people looking for employment. $\endgroup$
    – Giskard
    Nov 23, 2021 at 8:57
  • $\begingroup$ Thanks, that seems like a logical idea. I find it really irritating that the textbook doesn't define this. It would seem to be key to understanding the concept. $\endgroup$
    – Studi
    Nov 24, 2021 at 13:41
  • $\begingroup$ The given answers are correct. What book do you refer to exactly? Did you check the sections before? I would be surprised if there would be no definitions. E.g. Mankiw Macroeconomics, 10th Edition defines it as such: "Let s denote the rate of job separation, the fraction of employed individuals who lose or leave their jobs each month. Let f denote the rate of job finding, the fraction of unemployed individuals who find a job each month. $\endgroup$
    – AKdemy
    Aug 1, 2022 at 7:53

2 Answers 2

3
$\begingroup$

Separation = #new redundancies/employed person Job finding = #people entering employment/unemployed person

$\endgroup$
2
$\begingroup$

Job separation rate = newly unemployed in period $t$ as share of employed in period $t-1$.

Job finding rate = newly employed in period $t$ as a share of unemployed in period $t-1$.

There are sometimes differences how these definitions are used, especially if a like-for-like comparison is required. In such cases the rates may be expressed as shares in the labor force (employed + unemployed) in period $t$, or, less frequently, as shares in the working age population.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.