Jobs and Unemployment

7 Jobs and Unemployment CHAPTER CHECKPOINTS

Checkpoint 7.1 Checkpoint 7.2 Checkpoint 7.3 Problem 1 Problem 1 Problem 1 Clicker version Problem 2 Clicker version Problem 3 Clicker version

Practice Problem 1 The Bureau of Labor Statistics reported that in May 2005: The labor force was 148.9 million. Employment was 141.6 million. The working-age population was 225.7 million. Average weekly hours were 33.9. Calculate the unemployment rate in May 2005, the labor force participation rate, and the aggregate hours worked in 2005. CHECKPOINT 7.1

Solution The labor force is the sum of the number employed plus the number unemployed. So the number unemployed equals the labor force minus the number employed. Number unemployed = 48.9 million – 141.6 million = 7.3 million. The unemployment rate is the number unemployed as a percentage of the labor force. Unemployment rate = (7.3 million ÷ 148.9 million) x 100 = 4.9 percent. CHECKPOINT 7.1

The labor force participation rate is the percentage of the working-age population who are in the labor force. That is, labor force participation rate equals (148.9 million ÷ 225.7 million) x 100. Labor force participation rate is 66.0 percent. In May 2005, 141.6 million people worked an average of 33.9 hours per week. With 50 workweeks in a year, the aggregate hours worked is 141.6 million x 33.9 hours x 50 weeks = 240 billion. CHECKPOINT 7.1

Practice Problem 1 The figure shows the unemployment rate in the United States from 1960 to 2000. In which decade was the average unemployment rate the lowest and what brought low unemployment in that decade? In which decade was the average unemployment rate the highest and what brought high unemployment in that decade? CHECKPOINT 7.2

Solution The unemployment rate averaged 4.8 percent in the 1960s 6.2 percent in the 1970s 7.3 percent in the 1980s 5.7 percent in the 1990s. The average unemployment rate was lowest in the 1960s. In the 1960s, defense spending on the Vietnam War and an expansion of social programs brought an expanding economy. CHECKPOINT 7.2

The unemployment rate averaged 4.8 percent in the 1960s 6.2 percent in the 1970s 7.3 percent in the 1980s 5.7 percent in the 1990s. The average unemployment rate was highest in the 1980s. A deep recession in 1982 sent the unemployment rate to a peak of almost 10 percent. CHECKPOINT 7.2

Study Plan Problem In which decade was the average unemployment rate lowest and what brought that low unemployment rate? A. The 1990s; the development of the computer and cell phone. B. The 1960s; increased expenditure that resulted from the civil rights movement. C. The 1960s; Vietnam War defense spending, and consumer spending encouraged by expanded social programs. D. The 1990s; An expansion of the Asian economy that placed heavy demands on the United States. E. The 1980s; a war on poverty that led to increased spending by the poor. CHECKPOINT 7.2 • U.S. unemployment rate

In which decade was the average unemployment rate highest and what brought that high unemployment rate? A. The 1990s; the emergence of the European Union B. The 1970s; a collapse of the Asian economy. C. The 1980s; deep cuts in defense spending. D. The 1980s; a deep recession. E. The 1970s; Jimmy Carter’s austerity program. CHECKPOINT 7.2 • U.S. unemployment rate

Practice Problem 2 Describe the trends in the participation rates of men and women and all workers. Why did these trends occur? CHECKPOINT 7.2

Solution The participation rate of women increased because Better-educated women earn more. More white-collar jobs with flexible work hours were created. People have more time for paid employment. Families increasingly needed two incomes to balance their budgets. The participation rate of men decreased because more men remained in school and some men took early retirement. The overall participation rate increased. CHECKPOINT 7.2

Study Plan Problem The labor force participation rate of women increased between 1967 and 2007 because A. technological change created more white-collar jobs that women found attractive. B. technological change in the home increased the time available for paid employment. C. families wanted a second income to balance tight budgets. D. more women completed college and could earn a higher wage rate. E. all of the above. CHECKPOINT 7.2

The labor force participation rate of men decreased between 1967 and 2007 because A. with enough wealth, some older men decided to retire early. B. some men lost their jobs at an age at which finding a new job was difficult, so they withdrew from the labor force. C. some younger men decided to remain in full-time education. D. all of the above. CHECKPOINT 7.2

Practice Problem 3 Describe the trends and fluctuations in part-time work. Why is part-time work on the increase? Do aggregate hours increase at the same rate as the increase in employment? Explain why or why not. CHECKPOINT 7.2

Solution Part-time work has increased because it provides flexible hours for workers and cuts costs for firms. Aggregate hours increase more slowly than employment because average hours per worker fall. CHECKPOINT 7.2

Study Plan Problem Which statement best describes the trends in jobs and employment in the United States since 1994? A.Involuntary part-time employment has increased substantially as a percentage of total employment. B. Most part-time workers would prefer to have full-time work. C. Total part-time employment fluctuates with the business cycle but involuntary part-time employment doesn’t fluctuate much. D. Part-time work is attractive to workers because it provides flexible hours and attractive to employers because it cuts costs. E. Part-time employment has increased substantially as a percentage of total employment. CHECKPOINT 7.2

Which statement best describes the trends in aggregate hours and average hours in the United States since 1994? A. Between 1967 and 2007, the number of people employed almost doubled, but aggregate hours increased by only 75 percent. B. Fluctuations in aggregate hours are counter-cyclical to the business cycle. C. Average hours per worker increased from 34 hours in 1967 to 38 hours in 2007. D. Aggregate hours have a downward trend. CHECKPOINT 7.2

Practice Problem 1 The table sets out the results of a labor force survey on a Polynesian island. All the job losers, entrants, and reentrants became unemployed. Calculate for the end of 2006, the unemployment rate and the labor force participation rate. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

Solution Unemployment at the end of 2006 equals unemployment in December 2005 plus job losers, job leavers, entrants, and reentrants minus hires and recalls and withdrawals. That is, unemployment = 1,500 + 750 + 300 +150 + 450 – 1,000 – 500 = 1,650. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

The unemployment rate is the percentage of the labor force who are unemployed. So first we need to calculate the labor force—the sum of employment and unemployment. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

The employment at the end of 2006 equals employment at the end of 2005 plus hires and recalls minus job losers and job leavers. That is, at the end of 2006 employment equals 13,500 + 1,000  750  300, which is 13,450. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

The labor force is the sum of unemployment and employment. The labor force equals1,650 + 13,450 = 15,100. The unemployment rate is the percentage of the labor force who are unemployed (1,650 ÷ 15,100) x 100 = 10.9 percent. CHECKPOINT 7.3 • At end of 2006: • Unemployment 1,650 • Employment 13,450

The labor force participation rate is the percentage of the working-age population who are in the labor force. At the end of 2005, the working-age population is the number employed, unemployed, and not in the labor force, which equals 13,500 + 1,500 + 7,500= 22,500. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Working-age population increased by 100. • At end of 2006: • Unemployment 1,650 • Employment 13,450 • Labor force 15,100

During 2006, the working-age population increased by 100, so at the end of 2006, the working-age population equals 22,500 + 100 = 22,600. At the end of 2006, the labor force participation rate is (15,100 ÷ 22,600) x 100 = 66.8 percent. CHECKPOINT 7.3 • In December 31, 2005: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2006, • Working-age population increased by 100. • At end of 2006: • Unemployment 1,650 • Employment 13,450 • Labor force 15,100

Jobs and Unemployment