Unemployment in the U.S.

The U.S. Unemployment Rate since 1960 Sources : and, Robert J. Gordon, Macroeconomics (Boston: Addison-Wesley, 2012). Unemployment Rate (U.S) % 2% 4%4% 6% 8% 10% 12% of unemployment Actual rate of unemployment Natural rate

Learning Objective 21.3 FIGURE How the Recession of 2001 Affected the Unemployment Rate The Effect of the Business Cycle on the Unemployment Rate The Business Cycle What Happens during a Business Cycle?

Costs of Unemployment Personal Cost Economic Cost

Why learn macroeconomics? 1. The macroeconomy affects society’s well- being.  example: Unemployment and social problems Each one-point increase in the u-rate is associated with:  920 more suicides  650 more homicides  4000 more people admitted to state mental institutions  3300 more people sent to state prisons  37,000 more deaths  increases in domestic violence and homelessness Each one-point increase in the u-rate is associated with:  920 more suicides  650 more homicides  4000 more people admitted to state mental institutions  3300 more people sent to state prisons  37,000 more deaths  increases in domestic violence and homelessness

Measuring Unemployment –The BLS estimates how many people in the U.S. fit into each category. Employed – a person (16 years old or over) who is –working for pay at least one hour per week, –self employed, or, –working 15 hours or more each week without pay in a family- operated enterprise. Unemployed – a person not currently employed who is either –actively seeking a job, or, –waiting to begin a job, or –on layoff, waiting to return to a previous job. Labor force – civilians (16 years and older) who are either employed or unemployed. Not in the labor force – persons (16 years and older) who are neither employed nor unemployed (like retirees, students, homemakers, or disabled persons).

U.S. Population, Employment, and Unemployment: April 2013 Civilian population 16 and over Civilian labor force Employed Employees Self-employed workers Unemployed New entrants Reentrants Lost last job Quit last job Laid off Not in the labor force Household workers Students Retirees Disabled Labor Force Participation Rate = Civilian labor force Civilian population (16+) = 63.3% Employment / Population Ratio = Number employed Civilian population (16+) = 58.6% Rate of Unemployment = Number unemployed Civilian labor force = 7.5% million million 89.9 million million 11.7 million = = =

Labor Force Participation Rate of Men and Women, The labor force participation rate of women has been steadily increasing for several decades. During the same period the rate of men has been falling. Labor Force Participation Rate of Men and Women Source: % 70 % 33 % 38 % 46 % 57.5 % ––––––– Men ––––––– –––––– Women –––––– % 76 % 57.7 % 87 %

Labor Force Participation Rate and Employment-Population Ratio: Both the labor force participation rate and the employment-population ratio trended upward from , but have been declining since. Both figures fell sharply during the recession. Each has had a weak rebound during the recovery phase of this business cycle. In 2013, both were still below their 2007 levels. Sources: Willem Van Zandweghe, “Interpreting the Recent Decline in Labor Force Participation,” Federal Reserve Bank of Kansas Economic Review (Quarter 1, 2012): 5-34; and Daniel Aaronson, Jonathan Davis, and Loujia Hu, “Explaining the Decline in the U.S. Labor Force Participation Rate,” Chicago Fed Letter, no. 296, (March 2012): % 58 % 60 % 62 % 64 % 66 % 68 % 2010 Employment-Population Ratio Labor Force Participation Rate

YearJanFebMarAprMayJunJulAugSepOctNovDec Unemployment Rate, by Percentages:

Unemployed Persons:

Composition of the Unemployed by Reason in 2013 (April) There are various reasons why persons were unemployed in April of Nearly one-half (44.8%) of the unemployed were dismissed from their previous jobs. More than a third (37.8%) of the unemployed were either new entrants or reentrants into the labor force. Job leavers 7.4% 10.9% 26.9% 10% 44.8% New entrants Reentrants On Layoff Dismissed from Previous Job Breakdown of Unemployed 2013 (April)

The Unemployment Rate By Age and Gender: April 2013 In 2013, the unemployment rate for men was 7.7%, compared to only 7.3% for women. The observed differential between male and female workers was higher with younger workers. The unemployment rate itself was also much higher for those under the age of 25 than for those over the age of 25. Source: Both –– Men aged –– All men All women –– Women aged –– % 26.2% 22.1% 14.0% 6.3% 7.7% 7.3% 12.3% 5.9% Civilian Rates of Unemployment (April 2013)

Unemployment Across Economies The unemployment rate in the United States, United Kingdom, and Japan has been persistently lower than the comparable rate of major continental European economies. The high unemployment countries have higher unemployment benefits, less flexible collective bargaining, and more regulated labor markets. 8.9 % 6.1 % Germany U.S. Japan Average Unemployment Rate ( ) France Italy U.K. 8.6 % 7.9 % 5.7 % 4.3 %

The Duration of Unemployment –The impact of unemployment is influenced by how long individuals have been unemployed. The unemployment spell The duration of unemployment Long-term unemployed Chronically unemployed

Unemployment Spell Duration The Duration of Unemployment

Table 20-1 Duration of Unemployment LENGTH OF TIME UNEMPLOYED PERCENTAGE OF TOTAL UNEMPLOYED Less than 5 weeks35.6% 5 to 14 weeks to 26 weeks weeks or more17.5 How Long Are People Usually Unemployed?

Unemployment Rate Marginally attached workers would like to be employed and have looked for a job in the recent past but are not currently looking for work. Discouraged workers are nonworking people who are capable of working but have given up looking for a job because of the state of the job market. Underemployment is the number of people who work part time because they cannot find full-time jobs.

Unemployment Rate

Frictional Unemployment: Types of Unemployment Cyclical Unemployment: Structural Unemployment:

Full Employment: Level of employment resulting when the rate of unemployment is normal, considering both frictional and structural factors. –Full employment is closely related to the concept of the natural rate of unemployment. Natural Rate of Unemployment: Level of unemployment that reflects “job shopping” in an economy of imperfect information and dynamic change. The Concept of Full Employment

The natural rate of unemployment is: –neither a temporary high nor temporary low. –a rate that is both achievable and sustainable. –the level of unemployment accompanying an economy’s “maximum sustainable rate of output.” Both demographic factors (e.g. young workers as a share of the labor force) and public policy (e.g. the level of unemployment benefits) influence the natural rate of unemployment. Actual rate of unemployment generally rises above natural rate during a recession and falls below the natural rate during a boom. The Concept of the Natural Rate of Employment

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