 The labor force includes all persons over age sixteen who are either working for pay or actively seeking paid employment.  People who are not employed or are not actively seeking work are not considered part of the labor force.

 The labor-force participation rate is the percentage of the population working or seeking employment.

 As the labor force grows, the production possibilities curve shifts outward.  This outward shift illustrates the increased capacity to produce goods and services given available technology and institutional constraints.

Consumption Goods (units per year) Investment Goods (units per year) B O C A H GF D Labor-force growth increases production possibilities

 Unemployment is the inability of labor-force participants to find jobs.  If a person is not employed and is actively seeking work they are counted as unemployed. People not engaging in or actively seeking work are not part of the labor force.

 Okun’s Law asserts that 1% more unemployment is estimated to equal 2 percent less output.

 U.S. Census Bureau surveys about 60,000 households a month to determine how many people are actually unemployed.  A person is considered unemployed if he or she is not employed and is actively seeking a job.

 The unemployment rate is the proportion of the labor force that is unemployed.

 How long a person remains unemployed is affected by the nature of the joblessness. ◦ Job leavers ◦ Job losers ◦ Reentrants ◦ New entrants

New entrants 8% Job leavers 14% Job losers 44% Reentrants 34%

 A discouraged worker is an individual who is not actively seeking employment but would look for or accept a job if one were available.  Discourage workers are not counted as part of the unemployment problem after they give up looking for a job.

 Underemployment exists when people seeking full-time paid employment work only part time or are employed at jobs below their capability.  Underemployed workers represent labor resources that are not being fully utilized.

 There are four major types of unemployment ◦ Seasonal Unemployment ◦ Frictional Unemployment ◦ Structural Unemployment ◦ Cyclical Unemployment

 Seasonal unemployment is the unemployment due to seasonal changes in employment or labor supply.  Season unemployment can affect farm workers, Christmastime retail workers, and other jobs without year-round production.

 Frictional unemployment is the brief periods of unemployment experienced by people moving between jobs or into the labor market.

 Frictional unemployment differs from other unemployment in three ways: l There is an adequate demand for the labor of the frictionally unemployed. l The frictionally unemployed have the skills required for existing jobs. l The job-search period will be relatively short.

 Structural unemployment is the unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.

 Structural unemployment is the worst for the economy, as workers must learn new skills and develop more training before they can get new employment.  Periods of structural unemployment tend to be longer than the other varieties.

 Cyclical unemployment is the unemployment attributable to the lack of job vacancies – i.e., to an inadequate level of aggregate demand.  Usually, the economy will return to a normal level on its own, but in extreme examples (e.g. The great depression), government help is needed to alleviate cyclical unemployment.

Rate of Unemployment (Percent)

 Full employment is not the same as zero unemployment.

 The natural rate of unemployment is the long-term rate of unemployment determined by structural forces in labor and product markets.

 The Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act) states our national goal is a 4% unemployment rate with a required goal of 3% inflation.

 Since 1950, unemployment rate has fluctuated from a low of 2.8 percent during the Korean War (1953) to a high of 10.8 percent during the recession.

End of Chapter 6