1. Principles of MacroEconomics: Econ101 1 of 29

2.  In this chapter we take a look at the problem of unemployment  When is a person “unemployed”?  What are the costs of unemployment?  What’s an appropriate policy goal for “full employment”? 6-2 2 of 29

3.  Labor force: All persons age 16 and over 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 6-3 3 of 29

4.  Labor-force participation rate: The percentage of the working-age population working or seeking employment  People who are neither employed nor actively seeking work are called nonparticipants 6-4 4 of 29

5. Only half the total U.S. population participates in the civilian labor force. The rest of the population is too young, in school, at home, retired, or otherwise unavailable. Source: U.S. Bureau of Labor Statistics 6-5 5 of 29

6. The labor force expands as births and immigration increase. A big increase in the participation rate of women after 1950 also added to labor-force growth. Source: Economic Report of the President, 2009 6-6 6 of 29

7.  Labor-force growth expands production possibilities, enabling more production  Need to create more jobs to assure that labor-force participants can find a job  Otherwise, could end up inside the production possibilities curve 6-7 7 of 29

8. C H GF D Labor-force growth increases production possibilities Consumption Goods (units per year) B A Investment Goods (units per year) O At point F, resources are unemploy ed 6-8 8 of 29

9.  To make full use of production capacity an economy’s labor force must be fully employed  Unemployment: The inability of labor-force participants to find jobs  Okun’s Law: 1 percent more unemployment results in 2 percent less output 6-9 9 of 29

10.  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 6-10 10 of 29

11.  Unemployment rate: The proportion of the labor force that is unemployed 6-11 11 of 29

12. Minority groups, teenagers, and less-educated individuals experience higher rates of unemployment. Source: U.S. Department of Labor (2008 data) 6-12 12 of 29

13.  When the economy is growing, unemployment rates and average duration decline Duration Percent of Unemployed Less than 5 weeks32.80% 5 to 14 weeks31.4 15 to 26 weeks16.0 27 weeks or more19.7 Median duration9.4 weeks Source: U.S. Bureau of Labor Statistics (2008 data) 6-13 13 of 29

14.  Discouraged worker: An individual who isn’t actively seeking employment but would look for or accept a job if one were available  Discouraged workers are not counted as unemployed because they gave up looking for a job 6-14 14 of 29

15.  Underemployment: People seeking full-time paid employment who work only part-time or are employed at jobs below their capability  Underemployed workers represent labor resources that are not being fully utilized 6-15 15 of 29

16.  Prolonged unemployment can hurt, causing  Lost income  Lost confidence  Social stress  Ill health 6-16 16 of 29

17.  Full employment is not the same as zero unemployment  There are several types of unemployment 6-17 17 of 29

18.  Seasonal unemployment: Unemployment due to seasonal changes in employment or labor supply  The Labor Department reports seasonally adjusted unemployment rates for every month 6-18 18 of 29

19.  Frictional unemployment: Brief periods of unemployment experienced by people moving between jobs or into the labor market  Differs from other types of unemployment:  Adequate demand for frictionally unemployed  They have skills required for existing jobs  The job-search period is relatively short 6-19 19 of 29

20.  Structural unemployment: Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs 6-20 20 of 29

21.  Cyclical unemployment: The unemployment attributable to the lack of job vacancies, that is, to an inadequate level of aggregate demand  Not enough jobs to go around due to inadequate demand for goods and services 6-21 21 of 29

22.  The economy must grow at least as fast as the labor force to avoid cyclical unemployment  When economic growth slows below this threshold, unemployment rates start to rise 6-22 22 of 29

23. Unemployment rates reached record heights (25 percent) during the Great Depression. In more recent decades, the unemployment rate has varied from 4 percent in full-employment years to over 10 percent in recession years. Source: U.S. Department of Labor 6-23 23 of 29

24.  The Employment Act of 1946 committed the government to pursue maximum employment  The full employment goal presumably means avoiding as much cyclical and structural unemployment as possible, while keeping frictional unemployment reasonably low 6-24 24 of 29

25.  Rising prices are a signal that employment is nearing capacity  During the 1960s, the Council of Economic Advisors placed full employment at a 4% unemployment rate 6-25 25 of 29

26.  Natural rate of unemployment: Long-term rate of unemployment determined by structural forces in labor and product markets  The “natural” rate of unemployment consists of frictional and structural components only 6-26 26 of 29

27.  The Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act) set 4% unemployment rate and 3% inflation as a national goal 6-27 27 of 29

28.  As much as one-fourth of the labor force was unemployed during the Great Depression  The unemployment rate fell to 1.2 percent during World War II and has fluctuated from a low of 2.8 percent during the Korean War to a high of 10.8 percent in the 1981-82 recession 6-28 28 of 29

29.  From 1982 to 1989 unemployment fell, but shot up again in the 1990-91 recession  The rate fell steadily during the last half of the 1990s, but rose sharply in late 2001  Subsequent recovery pushed the rate down again in 2006–7  The credit crisis of 2008 wiped out that gain 6-29 29 of 29