Chapter 06 Jobs and Unemployment

FOUNDATIONS OF MACROECONOMICS

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.

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.

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.

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.

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.

Participant Categories:
- Employed: 157.3 million
- Unemployed: 6.1 million
- Not in Labor Force: 93.7 million

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).
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).
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).

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%.

Great Depression (1929-1939):
- High unemployment, low incomes, economic hardship.
Cyclical Nature: Unemployment rate increases in recessions, decreases in expansions.

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

Frictional Unemployment (FU):
- Transition between jobs, includes recent graduates or moving spouses.
Structural Unemployment (SU):
- Arises from technological changes affecting job demand (e.g., ATMs reducing bank teller jobs).
Cyclical Unemployment (CU):
- Fluctuates with the business cycle; rises during downturns (e.g., 2008-2009 recession).

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.

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.

Graphical representations outline relationships of UR, CU, and output gap during economic cycles.
In recessions, UR exceeds NUR, reflecting economic stress.

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.