Jobs and Unemployment CHAPTER 7

LABOR MARKET INDICATORS So far we have studied measures of macroeconomic performance. 1)The value of output measured by GDP and GNP 2) The cost of living measured by the CPI and the inflation rate. Next 3) we want to analyze the labor market and unemployment.

Some Definitions Labor market data is obtained via the Current Population Survey, conducted by the Bureau of Labor Statistics (BLS) and the Bureau of the Census 1) 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. 2) The working-age population is segmented by those in the labor force and those not in the labor force. Labor force is the number of people employed plus the number unemployed. (i.e working age population not including students, retirees, persons without and not looking for work. US-154 mil)

LABOR MARKET INDICATORS A person is counted as employed if 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. Counted as unemployed if the person : Had no employment and 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.

DATA

7.1 LABOR MARKET INDICATORS As economist we want to evaluate the labor market.  Two Main Labor Market Indicators Unemployment rate is the percentage of people in the labor force who are unemployed. Unemployment rate = Number of people unemployed x 100 Labor force The number unemployed in Aug 2007 was 7 million. Guess how much now?

7.1 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 2009, the labor force participation rate was 65.8 percent.

7.1 LABOR MARKET INDICATORS Defn: 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. Ex) In 2005, U.S labor force was 151 million, employment was 143 million and the working age population is million.Canada’s labor force was 17 million, employment was 15.7 million, and the working age population was 25.1 million. You are asked to analyze the labor market, which country do you think it is harder to get a job? Calculate the unemployment rates, and labor force participation rate.

TYPES OF UNEMPLOYMENT Unemployment in the economy is created by 4 main causes. Frictional unemployment is the unemployment that arises from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. (n.b in this case the labor demand is still equal labor supply) 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. (n.b in this case labor demand does not equal labor supply)

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. Defn: Full employment: is the level of unemployment when the cyclical component is zero. Natural unemployment rate is the unemployment rate when the economy is at full employment. Aggregate Hours is the total number of hours worked in a year by all employed. ques: If the # of employed people decreases but the average hours worked increases. What happens to agg. hours?

Potential GDP is the level of real GDP that the economy would produce if it were at full employment. Ques: If the current unemployment rate is below the natural rate, then real GDP must be (above, below, equal) to potential GDP.