Jobs and Unemployment

1. 6 Jobs and Unemployment CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to • 1Define the unemployment rate and other labor market indicators. • 2 Describe the trends and fluctuations in the indicators of labor market performance in the United States. • 3 Describe the sources of unemployment, define full employment, and explain the link between unemployment and real GDP.

2. 6.1 LABOR MARKET INDICATORS • Current Population Survey • Every month, 1,600 interviewers working on a joint project of the Bureau of Labor Statistics (BLS) and the Bureau of the Census survey 60,000 households to establish the age and job market status of each member of the household. • Working-age population is the total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care or in the U.S. Armed Forces.

3. 6.1 LABOR MARKET INDICATORS • The working-age population is divided into those in the labor force and those not in the labor force. • Labor force is the number of people employed plus the number unemployed. • In June 2009, the U.S. labor force was 154.9 million—140.2 million people were employed and 14.7 million people were unemployed.

4. 6.1 LABOR MARKET INDICATORS • Population Survey Criteria • The survey counts as employed all persons who, during the week before the survey: • 1. Worked at least 1 hour in a paid job or 15 hours unpaid in family business. • 2. Were not working but who had jobs from which they were temporarily absent.

5. 6.1 LABOR MARKET INDICATORS • The survey counts as unemployed all persons who, during the week before the survey: • 1. Had no employment • 2. Were available for work, • and either: • 1. Had made efforts to find employment during the previous four weeks, or • 2. Were waiting to be recalled to a job from which they had been laid off.

6. 6.1 LABOR MARKET INDICATORS Figure 6.1 shows population labor force categories. The figure shows the data for June 2009.

7. Number of people unemployed Unemploymentrate = x 100 Labor force 6.1 LABOR MARKET INDICATORS • Two Main Labor Market Indicators • The unemployment rate • The labor force participation rate • Unemployment rate is the percentage of people in the labor force who are unemployed. In June 2009, the unemployment rate was 9.5 percent.

8. Labor force Labor force participation rate = x 100 Working-age population 6.1 LABOR MARKET INDICATORS • Labor force participation rate is the percentage of the working-age population who are members of the labor force. • In June 2009, the labor force participation rate was 65.7 percent.

9. 6.1 LABOR MARKET INDICATORS • Alternative Measures of Unemployment • The official definition of unemployment omits two types of labor: • Marginally attached workers • Part-time workers • A marginally attached worker is a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past.

10. 6.1 LABOR MARKET INDICATORS • Discouraged worker is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging. • In June 2009, 860,000 people were discouraged workers and 1,256,000 people were other marginally attached workers. • Adding these workers to the number unemployed and the labor force, the unemployment rate becomes 10.8 percent.

11. 6.1 LABOR MARKET INDICATORS • Part-Time Workers • Full-time workers are people who usually work 35 hours or more a week. • Part-time workers are people who usually work less than 35 hours a week. • Part-time for economic reasons are people who work 1 to 34 hours per week but are looking for full-time work. (Also called involuntary part-time workers)

12. 6.1 LABOR MARKET INDICATORS • In June 2009, when employment was 140.2 million, full-time employment was 112.9 million and part-time employment was 27.3 million. • An estimated 10.7 million people worked part time for economic reasons. • When this number along with marginally attached workers is added to both the number unemployed and the labor force, the unemployment rate becomes 16.5 percent.

13. 6.2 LABOR MARKET TRENDS AND FLUCTUATIONS • Unemployment Rate Figure 6.2 shows the U.S. unemployment rate: 1929–2009 The average unemployment rate was 5.7 percent.

14. 6.2 LABOR MARKET TRENDS AND FLUCTUATIONS The unemployment rate increases in recessions and decreases in expansions.

15. 6.2 LABOR MARKET TRENDS AND FLUCTUATIONS Great Depression A period of high unemployment, low incomes, and extreme economic hardship that lasted from 1929 to 1939.

16. 6.2 LABOR MARKET TRENDS AND FLUCTUATIONS • The Participation Rate • The participation rate increased from 59 percent in 1959 to 67 percent the 2009. • Between 1959 and 2009, the participation rate for women increased from 37 percent to 60 percent. • Between 1959 and 2009, the participation rate for men decreased from 84 percent to 72 percent.

17. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Sources of Unemployment • People who become unemployed are • Job losers—people who are laid off from their jobs • Job leavers—people who voluntarily quit their jobs • Entrants and reentrants—people who have just left school or who are now looking for a job after a period out of the labor force.

18. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT Figure 6.6 shows unemployment by reasons. Job leavers are the smallest group, and their number fluctuates little. Job losers are the biggest group, and their number fluctuates most.

19. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • People who end a period of unemployed are • Hires—people who have been unemployed and have started new jobs • Recalls—people who have been temporarily laid off and has started work again • Withdrawals—people who have been unemployed and have decided to stop looking for jobs.

20. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Types of Unemployment • Frictional unemployment is the unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. • For example, a graduate looking for his first job.

21. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Structural unemployment is the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs. • For example, telephone switching is now done by computer, rather than by operators. Also, call centers have been relocated to India.

22. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Seasonal unemployment is the unemployment that arises because of seasonal weather patterns. • For example, farm workers find jobs picking fruit as it ripens, but once the fruit is picked they are laid off. • Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion. • For example, during the recession of 2008–2009, many workers were laid off as business activity declined.

23. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Full Employment • Full employment occurs when there is no cyclical unemployment or, equivalently, when all the unemployment is frictional, structural, or seasonal. • Natural unemployment rate is the unemployment rate when the economy is at full employment.

24. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Unemployment and Real GDP • Cyclical unemployment is the fluctuating unemployment over the business cycle—unemployment increases during recessions and decreases during expansions. • At full employment, there is no cyclical unemployment. • At the business cycle trough, cyclical unemployment is positive. • At the business cycle peak, cyclical unemployment is negative.

25. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • Potential GDP is the level of real GDP that the economy would produce if it were at full employment. • Because the unemployment rate fluctuates around the natural unemployment rate, real GDP fluctuates around potential GDP: • When the unemployment rate is above the natural rate, real GDP is below potential GDP. • When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP.

26. 6.3 UNEMPLOYMENT AND FULL EMPLOYMENT • When the economy is at full employment, real GDP equals potential GDP and there is no output gap. • Output gap equals real GDP minus potential GDP, expressed as a percentage of potential GDP. • When the unemployment rate is above the natural rate, real GDP is below potential GDP and the output gap is negative. • When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP and the output gap is positive.