Principles of Macroeconomics ECON203, Lecture 7: Jobs (employment) and Unemployment Instructor: Turki Abalala

Lessons Objectives  After taking the lessons of this week, you should be able to: Understand the terms; labor force, employment, unemployment, employed, unemployed, full employment, sources of unemployment, types of unemployment, potential GDP, and output gap. Calculate unemployment rate and labor force participation rate, Understand the relationship between unemployment and output gap ECON nd Semester 20143

Class Outline  Labor Market Indicators The Unemployment Rate The labor force participation Rate  Sources of unemployment ECON nd Semester 20144

Labor Market Indicators  Current Population Survey It is a survey that conducted by the Bureau of Labor Statistics and the Bureau of the Census to collect accurate labor force data.  Working-age population 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 military. It is divided into those in the labor force and those who are not in the labor force ECON nd Semester 20145

Labor Market Indicators  Labor Force Labor force refers to all citizens 16 years of age and older who are working or looking for work except the peoples who are in prisons, hospital, or under in other institutional care, and in military. It is the number of people employed plus the number unemployed. Labor force = employed + unemployed population For example: In June 2009, the U.S. labor force was million— million people were employed and 14.7 million people were unemployed. ECON nd Semester 20146

Labor Market Indicators ECON nd Semester 20147

Labor Market Indicators  Population Survey Criteria The survey counts as employed all persons who, during the week before the survey, either: 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. ECON nd Semester 20148

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. ECON nd Semester 20149

Labor Market Indicators  Two Main Market Indicators: 1.The Unemployment rate. 2.The Labor Force Participation rate. 10 ECON nd Semester 2014

Labor Market Indicators  Unemployment Rate: Unemployment (Joblessness) occurs when a person who is actively searching for a job is unable to find one. This person is called unemployed. Unemployment rate is the percentage of people in the labor force who are unemployed, to calculate this rate: Example: In Saudi Arabia, the number of people unemployed in 2010 was 2million and the labor force was 25 million. What is the unemployment rate? 11 ECON nd Semester 2014

Labor Market Indicators  Labor Force Participation Rate It is the percentage of the working-age population who are members of the labor force. ECON nd Semester

Labor Market Indicators  Alternative Measures of Unemployment The official definition of unemployment omits two types of labor: 1.Marginally attached worker 2. Part-time workers  A marginally attached worker is a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past. ECON nd Semester

Labor Market Indicators  Discouraged worker is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging. In June 2009, 860,000 people were discouraged workers and 1,256,000 people were other marginally attached workers. Adding these workers to the number unemployed and the labor force, the unemployment rate becomes 10.8 percent. ECON nd Semester

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. Those are divided into two groups 1.Part-time for economic reasons are people who work 1 to 34 hours per week but are looking for full-time work. (Also called involuntary part-time workers) 2.Part-time for noneconomic reasons which includes those with health problems, family or personal responsibilities ECON nd Semester

Sources of Unemployment  People become unemployed if they are; 1.Job losers - people who are laid off from their jobs 2.Job leavers - people who voluntarily quit their jobs 3.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. ECON nd Semester

Sources of Unemployment 1.Job losers:  A job looser is someone who is laid off from a job, either permanently or temporarily.  People lose their jobs for many reasons; Some people are not a good match for their jobs. Firms fail, downsize or a new technology destroys some types of jobs.  A job looser who decided to look for a new job remains in the labor force and becomes unemployed. ECON nd Semester

Sources of Unemployment 2. Job leavers:  A job leaver is someone who voluntarily quits a job.  Usually, people leave their jobs for a reason: Either they have found a better one. Or, they have decided to withdraw from the labor force However, both of these two do not become unemployed.  But, few people quit their jobs because they want to spend time looking for a better one, these job leavers become unemployed. ECON nd Semester

Sources of Unemployment 3. Entrants or reentrants:  An entrant is someone who has just finished school and is looking for a job. Many entrants spend time looking for first job and during this period they are unemployed.  A reentrant is someone who has previously had a job, has then quit and left the labor force, and has now decided to look for a job again. ECON nd Semester

Sources 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. ECON nd Semester

Reference Chapter 6 of “Foundations of Macroeconomics” Pages and ECON nd Semester

22 Now it’s over for today. Any question? ECON nd Semester 2014