Jobs and Unemployment Goals for this chapter 1 Define the unemployment rate and other labor market indicators. 2 Describe the trends and fluctuations in the indicators of labor market performance in the United States. 3 Describe the sources of unemployment, define full employment, and explain the link between unemployment and real GDP. Notes and teaching tips: 7, 10, 23, 33-34, and 37. To view a full-screen figure during a class, click the red “expand” button. To return to the previous slide, click the red “shrink” button. To advance to the next slide, click anywhere on the full screen figure. To enhance your lecture, check out the Lecture Launchers, Land Mines, and Class Activities in the Instructor’s Manual.

LABOR MARKET INDICATORS ●Current Population Survey- Bureau of Labor Statistics (BLS) and the Bureau of the Census survey 60,000 households each month to establish the age and job market status of each member of the household. ● Working-age population is the total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care or in the U.S. Armed Forces.

LABOR FORCE – WHO COUNTS? ● The working-age population is divided into those in the labor force and those not in the labor force. ● Labor force is the number of people employed plus the number unemployed.

LABOR MARKET INDICATORS Population Survey Criteria The survey counts as employed all persons who, during the week before the survey: Worked at least 1 hour in a paid job or 15 hours unpaid in family business. Were not working but who had jobs from which they were temporarily absent.

ARE YOU UNEMPLOYED? ● The survey counts as unemployed all persons who, during the week before the survey: 1. Had no employment 2. Were available for work, and either: 1. Made efforts to find employment during the previous four weeks, or 2. Were waiting to be recalled to a job from which they had been laid off. ● Why might someone be not working and not looking for work? Perhaps the most difficult point in this chapter to get across to students is explaining the difference between the layperson’s definition of unemployment and unemployment as measured by the Bureau of Labor Statistics. The layperson typically considers anyone who is not working as unemployed. It is worth reemphasizing that a person is only considered officially unemployed if the person is not working but also is actively seeking employment. Here is a good opportunity to ask students a direct question to which they will happily provide several answers. Why might someone be not working and not looking for work? Students will no doubt point to some of the most obvious answers: full‐time student, homemaker, retired etc.

LABOR MARKET INDICATORS The Figure shows population labor force categories. The figure shows the data for June 2009.

2016 Statistics

LABOR MARKET INDICATORS ● Two Main Labor Market Indicators 1. The unemployment rate 2. The labor force participation rate ● Unemployment rate is the percentage of people in the labor force who are unemployed. ● Unemployment rate equation: 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒑𝒆𝒐𝒑𝒍𝒆 𝒖𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 𝒍𝒂𝒃𝒐𝒓 𝒇𝒐𝒓𝒄𝒆 𝒙 𝟏𝟎𝟎 ● In June 2009, the unemployment rate was 9.5 percent. Most recent unemployment rate is 4.9%. Unemployment is an emotionally charged subject and is a good one for reinforcing the important point that economics is positive in contrast to normative. Economists do not make normative judgments as to whether unemployment is good or bad; rather they explain why unemployment exists and what determines its rate. Some students mistakenly compute the unemployment rate as the number unemployed divided by the number employed. Make sure to explain that economists consider the labor force to include not only those who are employed but also those who are unemployed and looking for work.

LABOR MARKET INDICATORS ● Labor force participation rate is the percentage of the working- age population who are members of the labor force. Labor force participation rate= 𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑎𝑔𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑥 100 In June 2009, the labor force participation rate was 65.7 percent. In August 2016 the Labor Force participation rate is 62.8…matching a 36 year low.

LABOR MARKET INDICATORS ● Alternative Measures of Unemployment ● The official definition of unemployment omits two types of labor: 1. Marginally attached workers 2. Part-time workers ● A marginally attached worker is a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past.

LABOR MARKET ● Discouraged worker is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging. ● In June 2009, 860,000 people were discouraged workers and 1,256,000 people were other marginally attached workers. ● Adding these workers to the number unemployed and the labor force, the unemployment rate becomes 10.8 percent.

Full-time and Part-time ● Full-time workers are people who usually work 35 hours or more a week. ● Part-time workers are people who usually work less than 35 hours a week. ● Part-time for economic reasons are people who work 1 to 34 hours per week but are looking for full-time work. (Also called involuntary part-time workers). This rises in recession and falls in expansion. ● A part-time job is attractive to workers because they balance family with work and offer flexibility ● Attractive for employers: less government regulation and benefits are not paid to part-time workers.

If it was Counted? ● In June 2009, when employment was 140.2 million, full-time employment was 112.9 million and part-time employment was 27.3 million. ● An estimated 10.7 million people worked part time for economic reasons. ● When this number along with marginally attached workers is added to both the number unemployed and the labor force, the unemployment rate becomes 16.5 percent.

LABOR MARKET TRENDS AND FLUCTUATIONS Unemployment Rate The figure shows the U.S. unemployment rate: 1929–2009 The average unemployment rate was 5.7 percent.

Current Statistics

Alternative Measures of Unemployment ● The official measure of unemployment does not include marginally attached workers and people who work part time for economic reasons. ● The Bureau of Labor Statistics (BLS) now provides three broader measures of the unemployment rate, known as U-4, U-5, and U-6, that include these wider groups of the jobless. ● The official unemployment rate is called U-3 and there are two narrower measures U-1 and U-2.

LABOR MARKET TRENDS AND FLUCTUATIONS U-1 Unemployed for 15 weeks or more U-2 People laid off or had a temporary jobs U-3 Total (official) unemploy-ment. (as percentages of labor force)

LABOR MARKET TRENDS AND FLUCTUATIONS U-4 U-3 plus discouraged worker U-5 U-4 plus other marginally attached workers U-6 U-5 plus part time for economic reasons (as percentages of labor force plus unemployed in the added category)

Gotta Have a J-O-B Continuing with Back to the Future, Mr. Clifford now examines unemployment. Consider the following questions: What are the three types of unemployment he discusses? What are the causes? What is the natural rate of unemployment? What is the UE rate for the US natural rate?

Types of Unemployment (1) Frictional unemployment is the unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. ● For example, a graduate looking for his first job. Ask your class if anyone they know has been laid off. Then discuss whether losing a job creates frictional, structural, or cyclical unemployment. Look at your local examples. If you live in a steel‐producing area, for example, you can talk about local structural unemployment arising from the closing of a steel manufacturer due to international competition. For cyclical unemployment, ask students how they think the business cycle and cyclical unemployment is related to full‐time enrolment at higher education institutions. Students often don’t think there is any relationship. But nationally during a recession the growth rate of full‐time enrolment increases. Ask students if they can explain this relationship. The answer is that during a recession and due to the increase in cyclical unemployment, the opportunity cost of school decreases. This is a great way to keep students thinking about marginal benefits and costs.

Types of Unemployment, cont’d. (2) 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. ● For example, telephone switching is now done by computer, rather than by operators. Also, call centers have been relocated to India.

Types of Unemployment, cont’d. (3) Seasonal unemployment is the unemployment that arises because of seasonal weather patterns or changes or seasonal demand changes. . ● For example, farm workers find jobs picking fruit as it ripens, but once the fruit is picked they are laid off, Santa, the Easter Bunny…

Types of Unemployment, cont’d. (4) Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion. ● For example, during the recession of 2008–2009, many workers were laid off as business activity declined.

FULL EMPLOYMENT Full Employment ●Full employment occurs when there is no cyclical unemployment or, equivalently, when all the unemployment is frictional, structural, or seasonal. ●At the business cycle trough, cyclical unemployment is positive. ●At the business cycle peak, cyclical unemployment is negative. ●Natural unemployment rate is the unemployment rate when the economy is at full employment.

UNEMPLOYMENT and GDP ●Potential GDP is the level of real GDP that the economy would produce if it were at full employment. ●Because the unemployment rate fluctuates around the natural unemployment rate, real GDP fluctuates around potential GDP: ●When the unemployment rate is above the natural rate, real GDP is below potential GDP. ●When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP.

UNEMPLOYMENT and GDP, cont’d. ●When the economy is at full employment, real GDP equals potential GDP and there is no output gap. ●Output gap equals real GDP minus potential GDP, expressed as a percentage of potential GDP. ●When the unemployment rate is above the natural rate, real GDP is below potential GDP and the output gap is negative. ●When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP and the output gap is positive.

UNEMPLOYMENT and the Output Gap The figure shows this relationship. The unemployment rate fluctuates around the natural unemployment rate: Falling below the natural rate when cyclical unemployment is negative. Rising above natural rate when cyclical unemployment is positive.

UNEMPLOYMENT and the Output Gap As the unemployment rate fluctuates around the natural unemployment rate in part (a), the output gap fluctuates in part (b). When the unemployment rate is below the natural rate, the output gap is positive. When the unemployment rate exceeds the natural rate, the output gap is negative.