1. Aim of Chapter 2 To introduce the essential concepts, definitions, and trends of widely used labor market descriptors such as unemployment, labor force, and employment. To provide you with an overview of labor market analysis: labor demand-and-supply. Today ’ s Topic 1. Definitions of unemployment, employment, labor force 2. 2005 labor force statistics 3. Relationship among labor force variables 4. Trends of labor market descriptors and some stylized facts 5. More definitions of earnings variables

2. 1. Concepts & Definitions of Labor Force Variables Why does the Government collect statistics on the unemployed? Where do the statistics come from? - Monthly sample survey by the Bureau of the Census: Current Population Survey (CPS) - Sample size: 60,000 households  average selection probability = 1/1600 - Survey method: CAPI+CATI  collect information on the labor force activities or non-labor force status of the members of these households. - Reference week: the week that includes the 12th of the month. - Each person is classified according to the activities he/she engaged in during the reference week.

3. Who is counted as employed ?  Any work at all for pay or profit during the survey week. This includes all part- time and temporary work, as well as regular full-time employment.  “ With a job but not at work ” : have a job at which they did not work during the survey week because they were: On vacation; Ill; Experiencing child-care problems; Taking care of some other family or personal obligation; On maternity or paternity leave; Involved in an industrial dispute; or Prevented from working by bad weather.  "Unpaid family workers": work 15 hours or more in a week without pay in a family-operated enterprise. Ex1. George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father's farm about 20 hours each week. Ex 2. Lisa Fox spends most of her time taking care of her home and children, but, all day Friday and Saturday, she helps in her husband's computer software store.

4. Who is counted as unemployed?  Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. -> Active job search methods: Contacting: An employer directly or having a job interview; A public or private employment agency; Friends or relatives; A school or university employment center; Sending out resumes or filling out applications; Placing or answering advertisements; Checking union or professional registers; or Some other means of active job search.  Workers expecting to be recalled from layoff are counted as unemployed, whether or not they have engaged in a specific job seeking activity. Who is not in the labor force?  All others--those who have no job and are not looking for one-- are counted as "not in the labor force." -> School, retired, family responsibilities, disabled.

5. What about cases of overlap? Situations where individuals have engaged in more than one activity. -> A system of priorities: -> Labor force activities take precedence over non-labor force activities. Working or having a job takes precedence over looking for work. Examples: 1. James Kelly and Elyse Martin attend Jefferson High School. James works after school at the North Star Cafe, and Elyse is seeking a part-time job at the same establishment (also after school.) 2. Last week, Mary Davis, who was working for Stuart Comics, went to the Coastal Video Shop on her lunch hour to be interviewed for a higher paying job.

6. Summary Employed persons consist of:  All persons who did any work for pay or profit during the survey week.  All persons who did at least 15 hours of unpaid work in a family-operated enterprise.  All persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Unemployed persons are:  All persons who did not have a job at all during the survey week, made specific active efforts to find a job during the prior 4 weeks, and were available for work (unless temporarily ill).  All persons who were not working and were waiting to be called back to a job from which they had been temporarily laid off.

7. 2. 2005 Labor Force Statistics; annual average(thousand) ->update Figure 2.1 Population (226,082) Labor forceOut of labor force (149,320)(76,762) Employed Unemployed (141,730) (7,591)

8. The unemployment rate (UR): the ratio of those unemployed to those in the labor force. -> The UR in 2005 = (7,591/149,320)*100 = 5.1% The labor force participation rate (LFPR): the ratio of the total labor force to the working age population. -> The LFPR in 2005 = (149,320/226,082)*100 = 66.0% Per capita employment (E/P) = the ratio of employment to population. -> E/P in 2005 = (141,730/226,082)*100 = 62.7%

9. 3. Relationship among Labor Force Variables

10. Checking with 2005 data Log(LFPR) = log(.660)  -.4155 Log(E/P) = log(0.627)  -.4668 UR  -.4155 – (-.4668) =.0513 Implication & Illustration UR is affected not only by E/P but also LFPR.

11. Definitions of Earnings Variables Wage Rate or Wages: the payment for a unit of time. (Typical time unit used is hour.) Earnings: wages multiplied by the number of time units worked. Compensation: earnings plus employee benefits; (1) payments in kind: health insurance, paid vacation time (2) deferred payments: pensions Income: earnings plus unearned income such as dividends, interest received on investments and transfer payments received from the government like food stamps, welfare payments, unemployment compensation. Final Remark: (1) Earnings constitute only around 70% of the total compensation for many workers. (2) The largest portion of employee benefits come from vacations, pension, and insurance.