Jobs and Unemployment CHAPTER 6

When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Define the unemployment rate and other labor market indicators. 1 Describe the trends and fluctuations in the indicators of labor market performance in the United States. Describe the sources and types of unemployment, define full employment, and explain the link between unemployment and real GDP. 2 3

6.1 LABOR MARKET INDICATORS Current Population Survey Every month, 1,600 interviewers working on a joint project of the Bureau of Labor Statistics (BLS) and the Bureau of the Census survey 60,000 households to establish the age and job market status of each member of the household. Working-age population 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.

6.1 LABOR MARKET INDICATORS The working-age population is divided into those in the labor force and those not in the labor force. Labor force The number of people employed plus the number unemployed.

6.1 LABOR MARKET INDICATORS Population Survey Criteria The survey counts as employed all persons who, during the week before the survey: 1. Worked at least 1 hour in a paid job or 15 hours unpaid in family business. 2. Were not working but who had jobs from which they were temporarily absent.

6.1 LABOR MARKET INDICATORS 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. Had 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.

6.1 LABOR MARKET INDICATORS Figure 6.1 shows population labor force categories. The figure shows the data for May 2005.

6.1 LABOR MARKET INDICATORS Two Main Labor Market Indicators The unemployment rate The labor force participation rate Unemployment rate The percentage of people in the labor force who are unemployed. Unemployment rate = Number of people unemployed x 100 Labor force

6.1 LABOR MARKET INDICATORS Labor force participation rate The percentage of the working-age population who are members of the labor force. Labor force participation rate = Working-age population x 100 Labor force

6.1 LABOR MARKET INDICATORS Discouraged Workers Discouraged worker A person who does not have a job, is available to work, but has not made efforts to find a job within the previous four weeks.

6.1 LABOR MARKET INDICATORS Part-Time Workers Full-time workers People who usually work 35 hours or more a week. Part-time workers People who usually work less than 35 hours a week. Involuntary part-time workers People who work 1 to 34 hours per week but are looking for full-time work.

6.1 LABOR MARKET INDICATORS Aggregate Hours The total number of hours worked by all the people employed, both full time and part time, during a year. In May 2005, million people worked an average of 33.9 hours per week. With 50 workweeks per year, aggregate hours were million = 240 billion.

6.2 LABOR TRENDS AND FLUCTUATIONS Unemployment Figure 6.2 shows the U.S. unemployment rate: 1965–2005 The average unemployment rate between 1965 and 2005 was 5.9 percent.

6.2 LABOR TRENDS AND FLUCTUATIONS The unemployment rate increases in recessions and decreases in expansions.

6.2 LABOR TRENDS AND FLUCTUATIONS The Participation Rate The participation rate increased from 59 percent during the 1960s to 67 percent the Since 2000, the participation rate has fallen slightly. Between 1965 and 1999, the participation rate for women increased from 39 percent to 60 percent. Between 1965 and 2005, the participation rate for men decreased from 81 percent to 73 percent.

6.2 LABOR TRENDS AND FLUCTUATIONS Figure 6.3 shows the changing face of the labor market. The labor force participation rate of women has increased.

6.2 LABOR TRENDS AND FLUCTUATIONS The labor force participation rate of men has decreased. The average participation rate of both sexes has increased.

6.2 LABOR TRENDS AND FLUCTUATIONS Part-Time Workers Part-time work is attractive to workers because they Balance family with work Part-time work is attractive to employers because Benefits are not paid to part-time workers Less government regulation of part-time workers

6.2 LABOR TRENDS AND FLUCTUATIONS Figure 6.4 shows part- time workers from 1975 to Part-time workers are 16 to 17 percent of all workers and barely changes over the business cycle.

6.2 LABOR TRENDS AND FLUCTUATIONS The figure also shows involuntary part-time workers. Involuntary part-time work increases in recessions and decreases in expansions.

6.2 LABOR TRENDS AND FLUCTUATIONS Aggregate and Average Hours Between 1965 and 2005, the number of people employed doubled (up 100 percent) but aggregate hours increased by only 75 percent. The reason: average hours per worker decreased.

6.2 LABOR TRENDS AND FLUCTUATIONS Figure 6.5(a) shows aggregate hours: 1962–2002 Between 1965 and 2005, aggregate hours increased by 75 percent a year. Fluctuations in aggregate hours coincide with the business cycle.

6.2 LABOR TRENDS AND FLUCTUATIONS Figure 6.5(b) shows average weekly hours from 1965 to Average weekly hours decreased... And fluctuate with the business cycle.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Sources of Unemployment People who become unemployed are: Job loserspeople who are laid off from their jobs Job leaverspeople who voluntarily quit their jobs Entrants and reentrantspeople who have just left school or who are now looking for a job after a period out of the labor force.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Figure 6.6 shows unemployment by reasons. Job losers are the biggest group, and their number fluctuates most.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT People who end a period of unemployed are Hirespeople who have been unemployed and have started new jobs Recallspeople who have been temporarily laid off and has started work again Withdrawalspeople who have been unemployed and have decided to stop looking for jobs.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Types of Unemployment Frictional unemployment The unemployment that arises from normal labor turnoverfrom people entering and leaving the labor force and from the ongoing creation and destruction of jobs. Structural unemployment The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Seasonal unemployment The unemployment that arises because of seasonal weather patterns. Cyclical unemployment The fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Duration and Demographics of Unemployment On the average from 1995 to 2005, blacks experienced more than twice the unemployment rate of whites.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Duration and Demographics of Unemployment Teenagers experienced more than three times the unemployment of workers aged 20 and over. Women have lower unemployment rates than men.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Full Employment Full employment When there is no cyclical unemployment or, equivalently, when all the unemployment is frictional, structural, or seasonal. Natural unemployment rate The unemployment rate when the economy is at full employment.

6.3 SOURCES AND TYPES OF UNEMPLOYMENT Unemployment and Real GDP Cyclical unemployment is the fluctuating unemployment over the business cycleunemployment increases during recessions and decreases during expansions. At full employment, there is no cyclical unemployment. At the business cycle trough, cyclical unemployment is positive. At the business cycle peak, cyclical unemployment is negative.

Figure 6.8(a)shows the unemployment rate in the United States from 1975 to As the unemployment rate fluctuates around the natural rate unemployment, … 6.3 SOURCES AND TYPES OF UNEMPLOYMENT Cyclical unemployment is negative (shaded red) and positive (shaded blue).

6.3 SOURCES AND TYPES OF UNEMPLOYMENT 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.

Figure 6.8 shows the relationship between unemployment and real GDP. As the unemployment rate fluctuates around the natural rate unemployment in part (a), real GDP fluctuates around potential GDP in part (b). 6.3 SOURCES AND TYPES OF UNEMPLOYMENT

The Labor Market in YOUR Life Classify the labor market status of yourself and your friends. Are you in the labor force or not? Are you employed or unemployed? Are you a part-time or a full-time worker? Think about someone you know who is unemployed. Is this person experiencing frictional, structural, seasonal, or cyclical unemployment? How can you tell? Think about someone you know who has been unemployed but is now working. Did this person experience frictional, structural, seasonal, or cyclical unemployment? How long did it take this person to find a job?