Jobs and Unemployment

1. 16 Jobs and Unemployment CHAPTER Unemployment insurance is a pre-paid vacation for freeloaders. Ronald Reagan 40th US President (1911 – 2004) When more and more people are thrown out of work, unemployment results. Calvin Coolidge 30th US President (1872-1933)

2. 16.1 LABOR MARKET INDICATORS • Current Population Survey • Bureau of Labor Statistics (BLS) and Census Bureau • 60,000 households surveyed monthly • age and job market status of each member of the household. • Working-age population - 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. 16.1 LABOR MARKET INDICATORS • people in labor force • + people NOT in labor force • Working-age population • people employed • + people NOT employed • Labor Force • Anyone who does not meet criteria for being classified as “employed” or “unemployed” is NOT in the labor force. • Examples: • Homemaker • Retired w/o job • Disabled • FT student

4. 16.1 LABOR MARKET INDICATORS • Criteria for “Employed” • Worked at least 1 hour in a paid job or 15 hours unpaid in family business. • OR • Did NOT work, but had job from which they were temporarily absent.

5. 16.1 LABOR MARKET INDICATORS • Criteria for “Unemployed” • Did not work at least one hour on a job, and • Were available for work, and • Had made efforts to find employment during the previous four weeks • OR • Were waiting to be recalled to a job from which they had been temporarily laid off.

7. Must be IN LABOR FORCE to be counted as unemployed! • Example: My parents do not work paying jobs, they don’t want to work paying jobs, and they aren’t looking for paying jobs. Are they in the labor force? Are they unemployed? • Not in Labor Force: • 16 and under • Armed forces • Disabled, retired, hospitalized • Those that choose not to work or look for work for pay: • Homemakers • College students • Already rich enough • Me when I win Powerball

8. Must be IN LABOR FORCE to be counted as unemployed! • Example: My uncle was fired from his job last month for burning the fries. He has been putting applications in all over town every day since. Is he in the labor force? Is he unemployed? • Not in Labor Force: • 16 and under • Armed forces • Disabled, retired, hospitalized • Those that choose not to work or look for work for pay: • Homemakers • College students • Already rich enough • Me when I win Powerball

9. Must be IN LABOR FORCE to be counted as unemployed! • Example: My cousin quit her job because she thought her boss was mean. She looked for a job for a day or two but got tired and stopped. That was 3 months ago. Is she in the labor force? Is she unemployed? • Not in Labor Force: • 16 and under • Armed forces • Disabled, retired, hospitalized • Those that choose not to work or look for work for pay: • Homemakers • College students • Already rich enough • Me when I win Powerball

10. Number of people unemployed Unemploymentrate = x 100 Labor force 16.1 LABOR MARKET INDICATORS • Calculating Unemployment Rate • Unemployment rate - percentage of people in the labor force who are unemployed. In June 2009, the unemployment rate was 9.5 %. 14.8 mill/ 154.9 mill= 0.095 x 100 = 9.5%

11. Statistics for June 2009 (in thousands) Unemployment rate = #4 / #2 Source: www.bls.gov

12. Statistics for June 2009 (in thousands) Unemployment rate = #4 / #2 Source: www.bls.gov

13. Source: www.bls.gov

14. 16.1 LABOR MARKET INDICATORS • Discouraged Workers • Discouraged worker - person who does not have a job, is available and willing to work, but has not made specific efforts to find a job within the previous four weeks. • Person wants job, has sent resumes and submitted applications, but cannot find work. When 4 weeks passes without tangible search efforts, BLS does not consider this person in labor force, so this person is not “unemployed”. • When discouraged workers leave labor force, unemployment rate falls, falsely suggesting employment situation has improved. • When employment options improve, discouraged workers feel more hopeful about job opportunities, they re-enter labor force by resuming job search. This causes unemployment rates to increase, suggesting a worsening of employment situation.

15. “About 2.2 million persons (not seasonally adjusted) were marginally attached to the labor force in June, 618,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the past 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.Among the marginally attached, there were 793,000 discouraged workers in June, up by 373,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in June had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.” Source: Bureau of Labor Statistics, June Release

16. 16.1 LABOR MARKET INDICATORS • Part-Time Workers • Full-time workers– usually 35 hrs or more a week. • Part-time workers– usually less than 35 hrs a week. • Involuntary part-time workers- work less than 35 hrs/week but prefer or are looking for full-time work. • Also called “under-employed” • Hidden unemployed– discouraged workers and under-employed.

18. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT • Types of Unemployment • Frictional unemployment - arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. Generally voluntary. • Examples: Recent college graduates, homemaker with kids starting school, person attracted into labor force by higher wage. • Structural unemployment - arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs. Mismatch of skills and job openings. • Examples: Textile workers w/o computer skills required for available computer jobs, workers in old technology jobs.

19. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT • Seasonal unemployment - arises because of seasonal weather patterns. • Examples: Lifeguards, construction workers in some parts of US, Santa Claus. • Cyclical unemployment - fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion. Layoffs.

20. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT • Full Employment • Full employment – when cyclical unemployment =0. (when all the unemployment is frictional, structural, or seasonal). • Natural unemployment rate - unemployment rate when the economy is at full employment, about 5%.

21. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT • 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.

22. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT Figure 16.8(a)shows the U.S. unemployment rate from 1977 to 2007. As the unemployment rate fluctuates around the natural rate unemployment, … Cyclical unemployment is negative (shaded red) and positive (shaded blue).

23. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT • Potential GDP - level of real GDP 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.

24. 16.3 SOURCES AND TYPES OF UNEMPLOYMENT Figure 16.8 shows the relationship between unemployment and real GDP. As the unemployment rate fluctuates around the natural rate unemployment in part (a), real GDP fluctuates around potential GDP in part (b).