Chapter 06 Jobs and Unemployment

FOUNDATIONS OF MACROECONOMICS

• Title: Foundations of Macroeconomics

• Edition: Ninth Edition by Bade and Parkin

OVERVIEW

• Chapter Goals:

  • Define the Unemployment Rate (UR) and other labor market indicators.

  • Describe trends and fluctuations in labor market indicators in the U.S.

  • Explain types of unemployment and the link between unemployment and real GDP.

LABOR MARKET INDICATORS

Current Population Survey

• Purpose: Conducted by the Bureau of Labor Statistics (BLS).

• Method: Monthly survey by 1,600 interviewers of 60,000 households.

• Categories:

  • Working-age Population (WAP)

    • Aged 16 years and above.

    • Non-institutionalized individuals.

    • Civilian population, excluding U.S. Armed Forces.

Working-Age Population Divisions

• WAP Definition: Total population aged 16+.

• Divisions:

  • Labor Force (LF)

    • Comprises employed and unemployed individuals.

  • Not in Labor Force (NLF)

  • Formula: WAP = LF + NLF

• Labor Force Statistics (July 2019): 163.4 million labor force, 157.3 million employed, 6.1 million unemployed.

Employment Criteria

• Employed Individuals:

  • Worked at least 1 hour for pay.

  • Worked without pay for a minimum of 15 hours in a family business.

  • Had a job but were temporarily absent.

Unemployment Criteria

• Unemployed Individuals:

  • Had no job but were available for work.

  • Made efforts to find employment or were waiting to be recalled to a job.

• Classification: Unemployed ≠ Not in Labor Force.

Labor Market Statistics (July 2019)

• Participant Categories:

  • Employed: 157.3 million

  • Unemployed: 6.1 million

  • Not in Labor Force: 93.7 million

UNEMPLOYMENT RATES AND MEASUREMENTS

Key Indicators

1. Unemployment Rate (UR):

   • Percentage of those unemployed in the labor force.

   • Calculation: ( UR = \frac{Number\ of\ Unemployed}{Labor\ Force} \times 100 )

   • Example: UR = 3.7% (July 2019).

2. Employment-Population Ratio (EPR):

   • Percentage of working-age population that is employed.

   • EPR = ( \frac{Number\ of\ Employed}{Working-age\ Population} \times 100 )

   • Example: EPR = 60.7% (July 2019).

3. Labor Force Participation Rate (LFPR):

   • Percentage of working-age population that is part of the labor force.

   • LFPR = ( \frac{Labor\ Force}{Working-age\ Population} \times 100 )

   • Example: LFPR = 63.0% (July 2019).

Alternative Measures of Unemployment

• Marginally Attached Workers & Part-time Workers:

  • Marginally Attached Worker: Not currently looking but available for work.

  • Discouraged Workers: Marginally attached who stopped looking due to discouragement.

• Adding these categories raises the unemployment rate to 4.8%.

Full-Time vs. Part-Time Work

• Full-Time Employment: Usually 35 hours or more per week.

• Part-Time Employment: Less than 35 hours; often involuntary part-time work.

• In July 2019: 3.9 million part-time workers desired full-time work.

LABOR MARKET TRENDS AND FLUCTUATIONS

Unemployment Rate Trends (1929-2019)

• Analysis of historical unemployment rate data.

• 1948 to 2019 average unemployment rate: 5.7%.

Economic Influences

• Great Depression (1929-1939):

  • High unemployment, low incomes, economic hardship.

• Cyclical Nature: Unemployment rate increases in recessions, decreases in expansions.

Labor Force Participation Rate

• 1960 peak: 67% participation rate; women increased from 37% to 60%, while men decreased from 83% to 70%.

TYPES OF UNEMPLOYMENT

Three Major Types

1. Frictional Unemployment (FU):

   • Transition between jobs, includes recent graduates or moving spouses.

2. Structural Unemployment (SU):

   • Arises from technological changes affecting job demand (e.g., ATMs reducing bank teller jobs).

3. Cyclical Unemployment (CU):

   • Fluctuates with the business cycle; rises during downturns (e.g., 2008-2009 recession).

Natural Unemployment Rate (NUR)

• Combination of frictional and structural unemployment, with cyclical at zero. Factors affecting NUR include:

  • Age distribution of the population.

  • Rate of structural change.

  • Real wage rate.

  • Unemployment benefits.

Relationship with Real GDP

• Full Employment: UR equals NUR, all unemployment is frictional or structural.

• Real GDP fluctuates around potential GDP based on the unemployment rate.

  • UR > NUR implies GDP < PGDP, conversely UR < NUR implies GDP > PGDP.

EMPLOYMENT, GDP, AND UNEMPLOYMENT RELATIONSHIPS

• Graphical representations outline relationships of UR, CU, and output gap during economic cycles.

• In recessions, UR exceeds NUR, reflecting economic stress.

AVERAGE DURATION OF UNEMPLOYMENT

• The average duration varies per economic conditions, increasing during recessions and decreasing during expansions.

• Example from 2000 to 2013 shows median job search time correlating with economic conditions.