Macro Chapter 7 Presentation 2

Labor Force The labor force consists of people who are willing and able to work Both those employed and those unemployed but seeking work are counted

Unemployment Rate Random monthly survey of 60,000 people conducted by the Bureau of Labor Statistics (BLS) Use the results of the survey to determine the unemployment rate for the nation

Unemployment Rate Calculated Unemployed = percentage of the labor force unemployed Unemployment rate = unemployed/labor force x 100

Unemployment Rate Contd. The BLS splits the population into 3 groups: 1. People under the age of 16 and people who are institutionalized (prison, psych hospitals)--- not counted in the labor force 2. Not in the labor force- adults who are potential workers that are not seeking work (ex. Homemakers, full-time students, retirees) 3. Labor Force- counted

Issues / Flaws with Unemployment Discouraged Workers not included – Gave up looking, but would still like to work Underemployed – Working part time or working in a job with a lower skill level than they possess Part-Time Workers- counted as employed ***some by choice some due to lack of demand

Types of Unemployment 1. Frictional Unemployment – Unemployment which occurs from people moving between jobs, careers, or locations

2. Structural Unemployment – Mismatch of workers and job openings – Unemployed people lack the skills or education, or geographically are misplaced Ex- jobs moving from the Rust Belt to the Sunbelt

3. Cyclical Unemployment – Occurs from changes in the Business Cycles (recession, depression) – Lay-offs due to a decrease in demand for goods/services

4. Seasonal Unemployment Change in hiring patterns due to the time of year Ex- Ski Instructors, Lifeguards, Landscapers

Full Employment Exists when there is structural, frictional, and seasonal unemployment but no cyclical unemployment

Full Employment Rate (Natural Rate of Unemployment) The economy is producing at its potential output The number of job seekers matches the number of jobs available Appx. 4-5%

Nominal Income Number of dollars received as wages, rent, interest or profits

Real Income A measure of the amount of goods and services nominal income can buy The purchasing power of nominal income Income adjusted for inflation Real Income = nominal income/price index (in hundredths)

Real Income Contd. % change in real income = % change in nominal income - % change in price level Ex- price level rises by 6%. If Bill’s nominal income goes up by 6%, real income is unchanged. If nominal income goes up by 10%, real income will go up by 4% etc.