Unit 5: Full Employment In the long run, the right answer to unemployment is to create more jobs. - George Walker Bush, Unemployment is of vital importance,

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Presentation transcript:

Unit 5: Full Employment In the long run, the right answer to unemployment is to create more jobs. - George Walker Bush, Unemployment is of vital importance, particularly to the unemployed. - Edward Heath Business will be either better or worse. When more and more people are thrown out of jobs, unemployment tends to rise. - Calvin Coolidge

Society's Goals for Macro System  Growth  Stable Prices & Money  Full Employment  Stability of Business Cycle

Key Measures: Unemployment Rate Labor Force Participation Rate Employment-Population Rate Net New Jobs Create New Unemployment Claims Jobs-workers ratio

Unemployment in the U.S. US Unemployment Data - BLS.gov

Analyzing employment Population Adult Non- Institutional Civilian Pop. [A] Not In Labor Force Retired Don't want employment now In School Discouraged - quit looking for work Employed [C] Unemployed [D] (Not Employed, But Actively Looking) Labor Force [B] (willing & able to work) Voluntary Quit Involuntary Quit Returning New Entrant Institutional Pop. Children (<16) Active Duty Military

Defining “Adult Civilian Non- Institutionalized Population”  = labor force + not-in-labor-force  = total population – institutionalized – active duty military – children under age 16

Defining “Employed”: person is working regardless of type or num of hours/jobs.

Defining “Unemployed”: no job, but willing, able, and actively looking for work.

Defining Labor force:  unemployed + employed

Defining “Not-in-labor force:  retired, stay-at-home spouses, idle rich, non-working students, discouraged would- be workers (not looking)

Unemployment Rate: = Unemployed / Labor Force  Excludes discouraged workers

Labor Force Participation Rate: = Labor Force / Civ.N-I Adult Pop. = (employed + unemployed) / CivN- IA Pop

Employment Population Ratio = employed / population

Why don’t the unemployed have a job right now? 4 Types of Unemployment:

Frictional: open job exists for each unemployed worker but they haven’t matched up yet

Structural: open jobs exist but require skills/locations that match workers’

Seasonal: temporary situation because job only exists during certain months of year.

Cyclical: more unemployed workers than available open jobs.

Policy Goal: ‘full employment’, but that doesn’t mean 0% rate.

NATURAL RATE OF UNEMPLOYMENT: economy at capacity with zero frictional unemployment.

Full Employment is usually defined as achieving the “natural rate” or zero cyclical.