The Meaning and Calculation of Unemployment AP Macro Mr. Warner

What you will learn in this Module: How is unemployment measured? How is the unemployment rate calculated? Why is unemployment significant? Is there a relationship between economic growth and unemployment?

Defining and Measuring Unemployment Employed Unemployed: want to work, cannot find work, have looked for a job within the last 4-6 weeks Labor Force: employed + unemployed Note: it might be interesting to find the latest monthly employment report and bring relevant tables into the class to show the students how these statistics are presented by the Bureau of Labor Statistics.   http://www.bls.gov/bls/unemployment.htm The BLS narrows the population by categorizing only those citizens above the age of 16 who are not institutionalized (not in prisons, the Armed Forces, etc). The population is then divided into three groups: those who are working at least one hour per week (Employed) those who were not working at least one hour, but were seeking work (Unemployed) and those “not in labor force,” The Labor Force = Employed + Unemployed Two important measures can then be derived. labor force participation rate: the percentage of the working­ -­ age population that is in the labor force, is calculated as follows: LFPR% = 100*(LF)/(civilian population 16 and older) Unemployment rate: the percentage of the labor force that is not employed. UR% = 100*(# unemployed)/(# Labor Force) Labor Force Participation Rate Unemployment Rate

The Significance of the Unemployment Rate Indicator of employment opportunity Overstating the true level of unemployment Understating the true level of unemployment marginally attached workers: would like to work, aren’t looking, doing something else discouraged workers: would like to work, quit looking Underemployed: has a job but needs more work Note: Remind the students of the business cycle that shows the ebb and flow of the macroeconomy. Discuss what is happening when the economy is weakening. This is also a good opportunity to review the circular flow model.   Example of a recession: Firms are producing less output because consumers are buying fewer products. With fewer customers, firms need fewer workers. As workers are laid off, the unemployment rate begins to rise. So a weakening economy shows up as a rising unemployment rate. But the UR is not a perfect measure of the true strength or weakness of the labor market and economy. Example: The economy is weak and Jim has had his hours cut from 40 per week to 10. Jim is still employed, but he has certainly seen a decrease in his weekly income. Terri has a Master’s degree, but can only find work as a barista in a coffee shop. She is also employed, but not in a job that matches her skills. The unemployment rate will not capture these forms of underemployment. Jerome has been unsuccessfully seeking work for nearly a year, and finally decides to give up. People like Jerome are classified as discouraged workers and are not counted as unemployed, they are out of the labor force. The presence of underemployed workers and discouraged workers causes the official unemployment rate to appear lower (better) than the actual labor market conditions. Note: you can find the number of discouraged workers in the BLS reports. Show the students what happens to the UR when you add discouraged workers to the ranks of the unemployed.

The Significance of the Unemployment Rate

Practice The labor force participation rate is: The number of people in the labor force divided by the population The number of people in the labor force divided by the civilian, noninstitutionalized age 16 and over population The number of people in the noninstitutionalized age 16 and over population divided by the labor force The number of unemployed divided by the labor force The number of unemployed divided by the civilian, noninstitutionalized age 16 and over population Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

Practice Nabiha is currently not employed, but she’s thinking about getting a job and looks online frequently to see what kinds of jobs are available. The Bureau of Labor Statistics would consider her to be: Employed In the labor force Not in the labor force A discouraged worker None of the above Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

Practice Rebecca lost her real estate agent job after the housing bubble burst, and after a few months of unsuccessfully looking for a job, she stopped looking and entered a job retraining program to become a nurse. She would currently count as: Employed Unemployed In the labor force Not in the labor force Seasonally unemployed Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

Practice Suppose the population is 300 million. There are 146 million employed, and 7.2 million unemployed. The unemployment rate is: 2.4% 4.6% 4.9% 5.3% Insufficient data Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

Practice Suppose the population is 300 million. There are 146 million employed, 7.2 million unemployed, but 1 million of those unemployed give up on finding a job. The unemployment rate is: 2.1% 2.4% 4.1% 4.7% Insufficient data Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

People with less than a high school diploma Practice - discussion Which of the following groups has not historically and consistently experienced unemployment rates higher than the average worker? African Americans Hispanics and Latinos Teenagers People with less than a high school diploma Women Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

A marginally attached worker Practice Fernando lost his job as a computer programmer during the last recession, and could only find part-time work at a local grocery store. Fernando is: Unemployed Underemployed A discouraged worker Not in the labor force A marginally attached worker Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.

Growth and Unemployment Recessions and unemployment Economic expansions and unemployment Caveat: does growing real GDP always strongly affect employment? Relationship between economic growth and unemployment: 1) Graph 2) Circular Flow Diagram Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.   Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function. The instructor can now refer the students to the same scatter graph in the text. Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot. Even when the economy is very strong, the unemployment rate is not zero.