2. Jobs and Unemployment CHAPTER 23

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

4. 23.1 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 is the 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.

5. 23.1 LABOR MARKET INDICATORS The working-age population is divided into those in the labor force and those not in the labor force. Labor force is the number of people employed plus the number unemployed. In August 2007, the U.S. labor force was 152.9 million— 145.8 million people were employed and 7.1 million people were unemployed.

6. 23.1 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.

7. 23.1 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.

8. 23.1 LABOR MARKET INDICATORS Figure 23.1 shows population labor force categories. The figure shows the data for August 2007.

10. 23.1 LABOR MARKET INDICATORS  Two Main Labor Market Indicators The unemployment rate The labor force participation rate Unemployment rate is the percentage of people in the labor force who are unemployed. Unemployment rate = Number of people unemployed x 100 Labor force In August 2007, the unemployment rate was 4.6 percent.

11. 23.1 LABOR MARKET INDICATORS Labor force participation rate is 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 In August 2007, the labor force participation rate was 65.8 percent.

12. 23.1 LABOR MARKET INDICATORS  Discouraged Workers Discouraged worker is a person who does not have a job, is available and willing to work, but has not made specific efforts to find a job within the previous four weeks.

13. 23.1 LABOR MARKET INDICATORS  Part-Time Workers Full-time workers are people who usually work 35 hours or more a week. Part-time workers are people who usually work less than 35 hours a week. Involuntary part-time workers are people who work 1 to 34 hours per week but are looking for full-time work.

14. 23.1 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 August 2007, 145.8 million people worked an average of 33.8 hours per week. With 50 workweeks per year, aggregate hours were 145.8 million  33.8  50 = 246.4 billion.

15. 23.2 LABOR TRENDS AND FLUCTUATIONS  Unemployment Figure 23.2 shows the U.S. unemployment rate: 1967–2007 The average unemployment rate between 1967 and 2007 was 5.9 percent.

16. 23.2 LABOR TRENDS AND FLUCTUATIONS The unemployment rate increases in recessions and decreases in expansions.

18. 23.2 LABOR TRENDS AND FLUCTUATIONS  The Participation Rate The participation rate increased from 60 percent during the 1960s to 67 percent the 2000. Since 2000, the participation rate has fallen slightly. Between 1967 and 1997, the participation rate for women increased from 40 percent to 60 percent. Between 1967 and 2007, the participation rate for men decreased from 80 percent to 73 percent.

19. 23.2 LABOR TRENDS AND FLUCTUATIONS Figure 23.3 shows the changing face of the labor market. The labor force participation rate of women has increased.

20. 23.2 LABOR TRENDS AND FLUCTUATIONS The labor force participation rate of men has decreased. The average participation rate of both sexes has increased.

22. 23.2 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

23. 23.2 LABOR TRENDS AND FLUCTUATIONS Figure 23.4 shows part-time workers from 1977 to 2007. Part-time workers are 16 to 17 percent of all workers and barely changes over the business cycle.

24. 23.2 LABOR TRENDS AND FLUCTUATIONS The figure also shows involuntary part- time workers. Involuntary part-time work increases in recessions and decreases in expansions.

26. 23.2 LABOR TRENDS AND FLUCTUATIONS  Aggregate and Average Hours Between 1967 and 2007, the number of people employed almost doubled (up 96 percent) but aggregate hours increased by only 75 percent. The reason: average hours per worker decreased.

27. 23.2 LABOR TRENDS AND FLUCTUATIONS Figure 23.5(a) shows aggregate hours: 1967–2007. Between 1967 and 2007, aggregate hours increased by 75 percent a year. Fluctuations in aggregate hours coincide with the business cycle.

29. 23.2 LABOR TRENDS AND FLUCTUATIONS Figure 23.5(b) shows average weekly hours from 1965 to 2005. Average weekly hours decreased... And fluctuate with the business cycle.

31. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT  Sources of Unemployment People who become unemployed are Job losers—people who are laid off from their jobs Job leavers—people who voluntarily quit their jobs Entrants and reentrants—people who have just left school or who are now looking for a job after a period out of the labor force.

32. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT Figure 23.6 shows unemployment by reasons. Job leavers are the smallest group, and their number fluctuates little. Job losers are the biggest group, and their number fluctuates most.

34. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT People who end a period of unemployed are Hires—people who have been unemployed and have started new jobs Recalls—people who have been temporarily laid off and has started work again Withdrawals—people who have been unemployed and have decided to stop looking for jobs.

35. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT  Types of Unemployment Frictional unemployment is the unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. Structural unemployment is the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.

36. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT Seasonal unemployment is the unemployment that arises because of seasonal weather patterns. Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion.

37. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT  Duration and Demographics of Unemployment On the average from 1997 to 2007, blacks experienced more than twice the unemployment rate of whites.

38. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT Teenagers experienced more than three times the unemployment of workers aged 20 and over. Women have lower unemployment rates than men.

40. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT  Full Employment Full employment occurs when there is no cyclical unemployment or, equivalently, when all the unemployment is frictional, structural, or seasonal. Natural unemployment rate is the unemployment rate when the economy is at full employment.

41. 23.3 SOURCES AND TYPES OF UNEMPLOYMENT  Unemployment and Real GDP Cyclical unemployment is the fluctuating unemployment over the business cycle—unemployment 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.

42. Figure 23.8(a)shows the U.S. unemployment rate from 1977 to 2007. As the unemployment rate fluctuates around the natural rate unemployment, … 23.3 SOURCES AND TYPES OF UNEMPLOYMENT Cyclical unemployment is negative (shaded red) and positive (shaded blue).

44. 23.3 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.

45. Figure 23.8 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). 23.3 SOURCES AND TYPES OF UNEMPLOYMENT