Unemployment by huangyuarong



    Ms. Flora
• Gapminder
      Current Population Survey
• Every month the Bureau of Labor Statistics
  and the Bureau of the Census carries out the
  Current Population Survey, which involves
  interviewing a random sample of 60,000
  households asking questions about the age
  and labor markets.
• Bureau of Labor Statistics
Population Labor Force Categories
• Population
• Working-age population (subtract younger than
  16-years-old, people in jail, hospital, or some
  other form of institutional care, or people in the
  U.S. Armed Forces)
• Labor force (sum of employment and
• Employed (worked at least one hour as paid
  employee or worked 15 hours or more as unpaid
  workers in family business; were not working but
  had jobs from which they were temporarily
         Who is unemployed?
• All persons who, during the week before the
  – Had no employment,
  – Were available for work,
• And either
  – Had made specific efforts to find employment
    some time during the previous four weeks or
  – Were waiting to be recalled to a job from which
    they had been laid off.
Two Main Labor Market Indicators

• The unemployment rate
• The labor force participation rate
       The Unemployment Rate
• The unemployed rate is the percentage of
  the people in the labor force who are
• Unemployment rate =
    Number of people unemployed x 100
      Labor Force
• In May 2005, 7.3 million x 100 = 4.9%
              148.9 million
   Labor Force Participation Rate
• Labor force participation rate is the
  percentage of the working-age population
  who are members of the labor force.

           Labor Force        x 100
       Working-age Population

• In May 2005, 148.9 million/225.7 million x 100
  = 66.0 percent
 Full-time workers/Part-time workers
• Full-time workers are those who usually work
  35 hours or more a week.
• Part-time workers are those who usually work
  less than 35 hours a week.
• Involuntary part-time workers are looking for
  full-time work but can’t find it because of
  unfavorable business conditions
         Discouraged Workers
• A discouraged worker is a person who does
  not have a job, is capable of working, but has
  not made efforts to find a job within the
  previous four weeks. They’ve given up looking
  for a job.
• Neither the unemployment rate nor the labor
  force participation rate includes discouraged
 U.S. Unemployment Rate 1965-2005
• The average unemployment rate from 1965 –
  2005 was 5.9 percent. The unemployment
  rate increases in recessions and deceases in
• Unemployment fell to an unusually low rate
  during the expansion of the 1990s and
  increased during the 2001 recession.
       Types of Unemployment
• Unemployment is classified into four types:
  – Frictional
  – Structural
  – Seasonal
  – Cyclical
      Frictional Unemployment
• Frictional unemployment is the
  unemployment that arises from normal labor
  turnover – from people entering the labor
  force and from the ongoing creation and
  destruction of jobs.
• Frictional unemployment is a permanent and
  healthy phenomenon in a dynamic, growing
        What influences frictional
• Depends on the rate at which people enter
  and renter the labor force
• Depends on the rate at which jobs are created
  and destroyed.
• Influenced by unemployment compensation.
      Structural Unemployment
• 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.
• Lasts longer than frictional unemployment
  because workers must retrain and possibly
  relocate to find a job.
           Structural Examples
     (Fundamental change or uniqueness to an industry
            that would create unemployment)

• Technology replacing workers
• Industry jobs lost to international trade and
  import competition
• Industry jobs lost to changing tastes and
  values (tobacco industry)
• Industry jobs lost to minimum wages or
• Industry jobs lost to government policy
       Seasonal Unemployment
• Seasonal unemployment is the unemployment
  that arises because of seasonal weather
• Examples: Fruit picker laid off after the fall
  harvest; construction worker laid off during
  the winter and rehired in the spring.
        Cyclical Unemployment
• Cyclical unemployment is the fluctuating
  unemployment over the business cycle. It
  increases during a recession and decreases
  during an expansion.
               Potential GDP
• Potential GDP is the level of real GDP that the
  economy would produce if it were at full
           Full Employment
• Full employment occurs when there is no
  cyclical unemployment or, when all the
  unemployment is frictional, structural, and
• The unemployment rate when the economy is
  at full employment is called the natural
  unemployment rate.
   The Economic Cost of Unemployment

GDP Gap When the economy fails to create enough jobs for all who are able
and willing to work, potential production of goods and services is irretrievably lost.

GDP gap = Potential GDP – actual GDP
Okun’s Law indicates that for every 1
percentage point by which the actual
unemployment rate exceeds the natural rate,
a negative GDP gap of about 2 percent occurs.
Production Possibilities Curve


            Actual GDP
      Economic Costs of Unemployment

A burden of unemployment is that its cost is
unequally distributed. There is a large variance in
unemployment rates for the following categories:
Race and ethnicity
 Noneconomic Costs of Unemployment
Severe cyclical unemployment is more than
an economic problem; it is a social

Loss of skills
Loss of self-respect
Low morale
Family disintegration
Social unrest
   Public Policy and Job Search
• Government programs try to facilitate job search
  in various ways:
   – Government-run employment agencies
   – Public training programs which aim to ease the
     transition of workers from declining to growing
   – Unemployment insurance – partially protects
     workers’ incomes when they become
   There are critics and advocates of government
        Minimum-wage laws
• When a minimum-wage law forces the
  wage to remain above the level that
  balances supply and demand, it raises the
  quantity of labor supplied and reduces the
  quantity of labor demanded compared to
  the equilibrium level. There is a surplus of
  labor. Because there are more workers
  willing to work than there are jobs, some
  workers are unemployed.
  Unions and Collective Bargaining
• A union is a worker association that
  bargains with employers over wages and
  working conditions.
• The process by which unions and firms
  agree on the terms of employment is called
  collective bargaining.
• If the union and the firm do not reach
  agreement, the union can organize a
  withdrawal of labor from the firm, called a
Are Unions Good or Bad for the Economy?

• Critics: Unions are merely a type of cartel that raises
  wages above the level that would prevail in
  competitive markets; therefore, they reduce the
  quantity of labor demanded, causing some workers
  to be unemployed.
• Advocates: Unions are a necessary antidote to the
  market power of the firms that hire workers. They
  help firms respond efficiently to workers’ concerns.
         Homework Question
#1, page 315, Mankiw: The Bureau of Labor
Statistics announced that in December 1998,
of all adult Americans, 138,547,000 were
employed, 6,021,000 were unemployed, and
67,723,000 were not in the labor force. How
big was the labor force? What was the labor-
force participation rate? What was the
unemployment rate?
             Answer to Mankiw
• The labor force consists of the number of employed
  (138,547,000) plus the number of unemployed
  (6,021,000), which equals 144,568,000.
• To find the labor-force participation rate, we need to
  know the size of the adult population. Adding the
  labor force (144,568,000) to the number of people
  not in the labor force (67,723,000) gives the adult
  population of 212,291,000. The labor-force
  participation rate is the labor force (144,568,000)
  divided by the adult population (212,291,000) time
  100%, which equals 4.2%.
             Homework Question

#6. Page 151, McConnell: Use the following data to
calculate (a) the size of the labor force and (b) the
official unemployment rate:
500 Total population
120 Under 16 years of age or institutionalized
150 Not in labor force
23 Unemployed

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