Measurement & Analysis Unemployment Measurement & Analysis 9.7%

How Is Unemployment Measured? The unemployment rate is calculated as the percentage of the labor force that is unemployed. Unemployme nt rate = Number une mployed Labor forc e ´ 100 Labor Force includes people over 16 with a job or looking for a job

Breakdown by Population Unemployment Rate Calculation: Adult Population (228.7 million) Employed (136.4 million) Labor Force (151 million) 14.6/151 = = 9.7% Unemployed (14.6 million) Not in labor force (77.0 million)

Why go to College? Less Than High School: 15.6% Unemployment by education level in 2010 when overall unemployment = 9.6% Less Than High School: 15.6% High School Graduate: 10.5% Less Than a Bachelor’s 8.0% College Graduate 5.0%

4-Types of Unemployment Structural Skills do not match demand for labor Cyclical Related to business cycle-----too low a level of GDP growth (occurs during recessions or periods of slow growth) Frictional Temporarily between Jobs or new to labor force Seasonal Out of work based on time of year

Natural Rate of Unemployment What: Unemployment that does not go away in long run Also called “Full Employment” (know this!) Equals the rate without cyclical unemployment Also, total of frictional & structural (seasonal is adjusted out)

Calculating the Natural Rate Economists debate actual level Was considered to be 5-6% before the 1990’s 2006 considered 4-5% We will use 4.5% for Natural rate (Full Employment) Critical Thinking: Why is it lower today? Many Reasons: Improved Job. Info on internet Temporary Work Agencies New Welfare Laws

Low Unemployment & Inflation Business competes for workers Wages begin to increase => The cost of doing business rises Leads to “cost push” inflation As unemployment rate falls Below full employment

Unemployment Rate vs. Natural Rate When is the economy clearly strong below? Percent of Labor Force 10 Unemployment rate 8 6 Natural rate of unemployment 4 If unemployment rate is less than Full Employment, things are good! 2 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 BUT!---inflationary pressures rise

Cyclical Structural 4-Types of Unemployment Seasonal Frictional