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.

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