Measuring the Unemployment Rate and the Labor Force Participation Rate

2. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate The Household Survey • Labor force The sum of employed and unemployed workers in the economy. • Unemployment rate The percentage of the labor force that is unemployed. Discouraged workers People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them.

3. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate The Household Survey FIGURE 8-1 The Employment Status of the Civilian Working-Age Population, April 2007

4. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate The Household Survey • The unemployment rate measures the percentage of the labor force that is unemployed. • The labor force participation rate measures the percentage of the working-age population in the labor force.

5. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate Problems with Measuring the Unemployment Rate Although the BLS reports the unemployment rate measured to the tenth of a percentage point, it is not a perfect measure of the current state of joblessness in the economy. The unemployment rate provides some useful information about the employment situation in the country, but it is far from an exact measure of joblessness in the economy.

6. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate Trends in Labor Force Participation FIGURE 8-2 Trends in the Labor Force Participation Rates of Adult Men and Women Since 1948

7. Learning Objective 8.1 MakingtheConnection • What Explains the Increase in “Kramers”? Why do more men seem to be adopting Kramer’s lifestyle?

8. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate Unemployment Rates for Demographic Groups FIGURE 8-3 Unemployment Rates in the United States by Demographic Group, April 2007

9. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate How Long Are People Usually Unemployed? Table 8-1 Duration of Unemployment

10. Learning Objective 8.1 Measuring the Unemployment Rate and the Labor Force Participation Rate The Establishment Survey: Another Measure of Employment Table 8-2 Household and Establishment Survey Data for March and April 2007

11. Learning Objective 8.2 Types of Unemployment FIGURE 8-4 The Annual Unemployment Rate in the United States, 1950–2006

12. Learning Objective 8.2 Types of Unemployment Frictional Unemployment and Job Search Frictional unemployment Short-term unemployment that arises from the process of matching workers with jobs. Structural Unemployment Structural unemployment Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs. Cyclical Unemployment Cyclical unemployment Unemployment caused by a business cycle recession.

13. Learning Objective 8.2 Types of Unemployment Full Employment Natural rate of unemployment The normal rate of unemployment, consisting of frictional unemployment plus structural unemployment.

14. Learning Objective 8.3 Explaining Unemployment Government Policies and the Unemployment Rate Unemployment Insurance and Other Payments to the Unemployed In the United States and most other industrial countries, the unemployed are eligible for unemployment insurance payments from the government. In the United States, these payments are equal to about half the average wage. Unemployment insurance helps the unemployed maintain their income and spending, which lessens the personal hardship of being unemployed and also helps reduce the severity of recessions.

15. Learning Objective 8.3 Explaining Unemployment Government Policies and the Unemployment Rate Minimum Wage Laws In 1938, the federal government enacted a national minimum wage law. If the minimum wage is set above the market wage determined by the demand and supply of labor, the quantity of labor supplied will be greater than the quantity of labor demanded. Economists agree that the current minimum wage is above the market wage for some workers, but they disagree on the amount of unemployment that has resulted.

16. Learning Objective 8.3 Explaining Unemployment Labor Unions Labor unions are organizations of workers that bargain with employers for higher wages and better working conditions for their members. Efficiency Wages Efficiency wage A higher-than-market wage that a firm pays to increase worker productivity.

17. Learning Objective 8.3 MakingtheConnection • Why Does Costco Pay Its Workers So Much More Than Wal-Mart Does? Costco’s relatively high wages and health benefits reduce employee turnover and raise morale and productivity.

18. Learning Objective 8.4 Measuring Inflation The Consumer Price Index FIGURE 8-6 The CPI Market Basket, December 2006

19. Learning Objective 8.4 Measuring Inflation The Consumer Price Index Consumer price index (CPI) An average of the prices of the goods and services purchased by the typical urban family of four.

20. Learning Objective 8.6 Real versus Nominal Interest Rates Nominal interest rate The stated interest rate on a loan. Real interest rate The nominal interest rate minus the inflation rate. Real interest rate = Nominal interest rate − Inflation rate Deflation A decline in the price level.

21. Learning Objective 8.6 Real versus Nominal Interest Rates FIGURE 8-7 Nominal and Real InterestRates, 1970–2006