Meaning & Calculation of Unemployment

Objectives: How is unemployment measured and calculated? What is the relationship between the unemployment rate and economic growth?

Defining & Measuring Unemployment Employed – people are currently holding a job in the economy, either full-time or part time Unemployed – people are actively looking for work but aren’t currently employed “jobless, looking for jobs, available for work” Retired people don’t count Disabled people don’t count An individual is considered unemployed if he or she doesn’t currently have a job and has been actively seeking a job during the past four weeks

Defining & Measuring Unemployment Labor Force – sum of the employed and the unemployed People who are currently working and the people who are currently looking for work Labor force participation rate is the share of the working-age population that is in the labor force

Unemployment Rate The labor force participation rate is the percentage of the population aged 16 or older that is in the labor force.  The unemployment rate is the percentage of the total number of people in the labor force who are unemployed.

Significance of the Unemployment Rate Unemployment rate is low, nearly everyone who wants a job can find one Discouraged workers are nonworking people who are capable of working but have given up looking for a job given the state of the job market. Marginally attached workers would like to be employed and have looked for a job in the recent past but are not currently looking for work. Underemployment is the number of people who work part time because they cannot find full-time jobs.

Unemployment Rate Alternative Measures of Unemployment, Year 12% Percentage of labor force

Unemployment Rate Unemployment Rates of Different Groups, 2007 White teenager 35% Unemployment rate Overall African-Amerian teenager African-Amerian 14.4% 4.7% 31.2% 7.7%

Unemployment Rate Unemployment and Recessions, Year 12% Unemployment Rate

Growth & Unemployment Periods of economic expansion, the unemployment rate usually falls But….economic expansions aren’t always periods of falling unemployment Because…..the economy can be growing, but not always growing fast enough to reduce the unemployment rate

Remember: Falling real GDP equals rising rate of unemployment