unemployment notes

employed

currently working for pay

unemployed

Out of work and actively looking for a job

out of labor force

Out of paid work and not actively looking for a job

labor force

The number of employed plus the unemployed

unemployment rate

the % of adults who are in the labor force but who do not have jobs

underemployed

those that are trained or skilled for one type or level of work who are working in a lower paying job or one that does not utilize their skills who are counted as “employed”

discouraged workers

those who have stopped looking for employment ‐> no longer counted in the “unemployed”

Labor force participation rate

• the % of adults in an economy who
  are either employed or who are unemployed and looking for a job

  • # of people in the labor force divided by the total adult population
    and multiplying by 100

  • Using 2017 data, the labor force participation rate = 62.9%

  • Late 1999/early 2000 = 67% (peak); has steadily declined since then
    (at time of textbook printing)

Cyclical unemployment

• unemployment closely tied to the business cycle, like higher unemployment during a recession

  • Why wages might be “sticky downward” ‐> even though wage increases occur with relative ease, wage decreases are few and far between. Why?

    • Implicit contract

    • Efficiency wage theory

    • Adverse selection of wage cuts argument

Implicit contract

the employer will try to keep wages from falling when the economy is weak or the business is having trouble; the
Employees will not expect huge salary increases when the economy or the business is strong

Efficiency wage theory

theory that the productivity of workers, either individually or as a group, will increase if they are paid more

Adverse selection of wage cuts argument

if employers reduce wages for all workers, the best will leave

insider‐outsider model

Those already working for the firm are “insiders” who know the procedures; the other workers are “Outsiders” who are recent or prospective hires

relative wage coordination argument

across‐the‐board wage cuts are hard for an economy to implement, and workers fight against them

Natural rate of unemployment

The unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

frictional unemployment

unemployment that occurs as workers move between jobs

structural unemployment

unemployment that occurs because individuals lack skills valued by employers can be either because demand has shifted away from skills they do have (aerospace engineers) or because they never learned any skills (high school dropouts)

full employment

occurs when actual unemployment rate= natural unemployment

B

The unemployment rate is calculated as:
a) The percentage of the total population without a job
b) The percentage of the labor force without a job
c) The number of discouraged workers divided by the adult population
d) The number of part-time workers divided by the labor force

C

A discouraged worker is:
a) Counted as unemployed in official statistics
b) Employed but seeking better wages
c) Out of the labor force and not actively job-seeking
d) A new entrant to the labor market

C

Which group is NOT included in the labor force participation rate?
a) Employed individuals
b) Unemployed individuals actively seeking work
c) Discouraged workers
d) Full-time students

B

The U.S. unemployment data is primarily collected through:
a) The Establishment Payroll Survey only
b) The Current Population Survey (CPS)
c) Self-reported tax filings
d) Union membership records

B

Cyclical unemployment is most closely tied to:
a) Long-term demographic shifts
b) The business cycle (e.g., recessions)
c) Technological advancements
d) Seasonal hiring patterns

B

"Sticky wages" refer to:
a) Wages that adjust rapidly during economic downturns
b) Wages that are slow to fall even when labor demand decreases
c) Wages determined exclusively by government policy
d) Wages tied to inflation-indexed contracts

B

Structural unemployment occurs when:
a) Workers voluntarily leave jobs to search for better pay
b) Workers lack skills demanded by employers
c) Temporary layoffs occur during holidays
d) Labor demand shifts due to short-term economic fluctuations

B

The natural rate of unemployment includes:
a) Only cyclical unemployment
b) Frictional and structural unemployment
c) Discouraged workers and underemployed individuals
d) Seasonal unemployment

B

According to efficiency wage theory, firms may pay higher wages to:
a) Comply with minimum wage laws
b) Increase worker productivity
c) Reduce labor force participation

A

In January 2017, the U.S. unemployment rate was 4.8%. How many people were unemployed?
a) 7.635 million
b) 152.081 million
c) 94.366 million
d) 254.082 million