Unemployment

ECON 101H: Introduction to Economics

Sergio O. Parreiras

Economics Department, UNC at Chapel Hill

Spring 2026

Unemployment

Unemployed

An individual who is an adult, not institutionalized,
a civilian, and is looking for work.

Frictional Unemployment

Short-term unemployment caused by
delays in matching employee to employer.

Structural Unemployment

Persistent, long-term unemployment.

Cyclical Unemployment

Unemployment correlated with the
ups and downs of the business cycle.

$w$

$L$

$D_L$

$S_L$

$w^*$

$L^*$

$\bar{L} \rightarrow$ hours available to worker
$L \rightarrow$ labor hours
$\ell \rightarrow$ leisure
$L + \ell = \bar{L}$
Utility maximization $\Rightarrow$
$S_L$: $w = U_\ell(\bar{L} - L)$

Firms maximize profits $\Rightarrow$
$D_L$: $w = p \cdot MP_L(K, L)$

In the supply & demand framework, without minimum wage, there is no unemployment: Labor supply is not larger than $L^*$ because workers are not willing to supply more labor at the wage $w^*$.

$w$

$L$

$D_L$

$S_L$

$w^*$

$L^*$

minimum wage

w

$L^{**}$

$\hat{L}$