Jobs and Unemployment

CHAPTER CHECKLIST
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.
 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.
Number of
people unemployed
Unemployment rate = 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 Labor force

x 100
participation rate = Working-age population
 6.1 LABOR MARKET INDICATORS

Discouraged Workers
Discouraged worker
A person who gives up looking for job in the previous
four weeks before the survey because he or she was
not able to find a job.
 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, 141.6 million people worked an average of
33.9 hours per week.
With 50 workweeks per year, aggregate hours were
141.6 million  33.9  50 = 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 2000.
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
2005.
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
2005.

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 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.
 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

• 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.
 6.3 SOURCES AND TYPES OF UNEMPLOYMENT

Types of Unemployment
Frictional unemployment
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
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 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.
 6.3 SOURCES AND TYPES OF UNEMPLOYMENT

Figure 6.8(a)shows the unemployment rate in the United

States from 1975 to 2005.
As the unemployment
rate fluctuates
around the natural rate
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.
 6.3 SOURCES AND TYPES OF UNEMPLOYMENT

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).
 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?