The Human Disaster: Key Findings 50% to 100% increase in death rates for older male workers in the years immediately following a job loss Increased.

The Human Disaster: Key Findings
50% to 100% increase in death rates for older male workers in the years immediately following a job loss Increased suicide rate, higher risk of death from cancer, higher chances of heart attack, etc. 18% increase in the probability of divorce following a husband’s job loss and 13% after a wife’s. Negative impact on children’s success (9% lower income of children, whose father experienced unemployment).

Unemployment Rate Facts
Lecture Notes: The unemployment rate is an important indicator of the economy’s health. Since 1960, the average unemployment rate in the United States has been about 6%. May 2017: 4.3%

Lecture Notes: The unemployment rate is an important indicator of the economy’s health. Since 1960, the average unemployment rate in the United States has been about 6%.

Unemployment rate in OECD Unemployment rate around the world Lecture Notes: The unemployment rate is an important indicator of the economy’s health. Since 1960, the average unemployment rate in the United States has been about 6%.

6 Jobs and Unemployment CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to 1 Define the unemployment rate and other labor market indicators. 2 Describe the trends and fluctuations in the indicators of labor market performance in the United States. 3 Describe the types of unemployment, define full employment, and explain the link between unemployment and real GDP. Notes and teaching tips: 7, 10, 23, and To view a full-screen figure during a class, click the red “expand” button. To return to the previous slide, click the red “shrink” button. To advance to the next slide, click anywhere on the full screen figure. To enhance your lecture, check out the Lecture Launchers, Land Mines, and Class Activities in the Instructor’s Manual.

6.1 LABOR MARKET INDICATORS
Current Population Survey Every month, 1,600 interviewers working on a joint project of the Bureau of Labor Statistics (BLS) and the Bureau of the Census survey 60,000 households to establish the age and job market status of each member of the household. Working-age population (officially “civilian noninstitutional 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.

The working-age population is divided into those in the labor force and those not in the labor force. Labor force is the number of people employed plus the number unemployed.

Population Survey Criteria The survey counts as employed all persons who, 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.

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. Perhaps the most difficult point in this chapter to get across to students is explaining the difference between the layperson’s definition of unemployment and unemployment as measured by the Bureau of Labor Statistics. The layperson typically considers anyone who is not working as unemployed. It is worth reemphasizing that a person is only considered officially unemployed if the person is not working but also is actively seeking employment. Here is a good opportunity to ask students a direct question to which they will happily provide several answers. Why might someone be not working and not looking for work? Students will no doubt point to some of the most obvious answers: full‐time student, homemaker, retired etc.

Two Main Labor Market Indicators The unemployment rate The labor force participation rate Unemployment rate is the percentage of people in the labor force who are unemployed. Unemployment rate = Number of people unemployed x 100 Labor force Unemployment is an emotionally charged subject and is a good one for reinforcing the important point that economics is positive in contrast to normative. Economists do not make normative judgments as to whether unemployment is good or bad; rather they explain why unemployment exists and what determines its rate. Some students mistakenly compute the unemployment rate as the number unemployed divided by the number employed. Make sure to explain that economists consider the labor force to include not only those who are employed but also those who are unemployed and looking for work. In May 2013, the unemployment rate was 7.6 percent.

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 May 2013, the labor force participation rate was percent.

𝑈𝑅= #𝑢𝑛𝑒𝑚𝑝 #𝐿𝐹 = 6, ,784 =4.3% 𝐿𝐹𝑃𝑅= #𝐿𝐹 #𝐶𝑁𝑃 = 159, ,767 =62.7%

Unemployment rate and labor force participation rate measure different things: Unemployment rate measures the degree of difficulty of finding a job, for those who want to work. LFP measures the willingness of people to work.

Alternative Measures of Unemployment The official definition of unemployment omits two types of labor: Marginally attached workers 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.

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 January 2017, 532,000 people were discouraged workers and 1,220,000 people were other marginally attached workers. By adding these workers to the number unemployed and the labor force, the unemployment rate becomes 5.8% (instead of 4.8%).

Important: declining unemployment rate is not always a good thing. Example: suppose there are 15m unemployed, with labor force of 150m. 𝑈𝑅= =10%. After prolonged recession, 1m workers became discouraged, and stopped looking for work. The new unemployment rate is: 𝑈𝑅= =9.3% Unemployment rate declined not because unemployed people found jobs, but because they gave up 

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. 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)

In May 2016, when employment was million, full-time employment was million and part-time employment was 27.9 million. An estimated 4.6 million people worked part time, but wanted to have a full-time job (i.e. underemployed). When this number, along with marginally attached workers, is added to both the number unemployed and the labor force, the unemployment rate becomes 9.6 percent.

6.2 LABOR MARKET TRENDS AND FLUCTUATIONS
From 1948 to 2016, the average unemployment rate was percent.

Great Depression A period of high unemployment, low incomes, and extreme economic hardship that lasted from 1929 to 1939.

The unemployment rate increases in recessions … and decreases in expansions.

The Participation Rate The participation rate increased from 59 percent in 1960 to 67 percent at its peak in 1999. Between 1960 and 1999, the participation rate for women increased from 37 percent to 60 percent. Between 1960 and 2016, the participation rate for men decreased from 83 percent to 70 percent.

Figure 6.3 shows the changing face of the labor market. The labor force participation rate increased until 1999 and then fell slightly.

The labor force participation rate of women has increased. The labor force participation rate of men has decreased. Students are interested in the different behavior of the male labor force participation rate and the female labor force participation rate. Students will probably believe that the reason for the increasing female participation rate is social, not economic. They will identify changing social attitudes toward women as the major source and probably see the women’s liberation movement as the driving force for this change. While not to deny the importance of attitudes, this area is a good one in which to get students to explore the economic forces that lie behind social attitudes and change. Get them to think about the technological advances that have contributed to more women being in the labor force. Many goods that were previously produced in the household are now mass‐produced and available for purchase— most items of prepared food, for example. New appliances have increased productivity in the home enabling household production in less time—laundry, kitchen, and cleaning equipment for example. The market provides new goods and services that households want but can’t readily make at home—home entertainment equipment (TV, CD, DVD, etc) for example. These changes lead to many families deciding to have two income earners rather than the older tradition of one. It is interesting to let students discuss what they think will happen to the labor force participation rates in the future and whether or not they think they will ever be equal—or unequal in the opposite direction!

Students are interested in the different behavior of the male labor force participation rate and the female labor force participation rate. Students will probably believe that the reason for the increasing female participation rate is social, not economic. They will identify changing social attitudes toward women as the major source and probably see the women’s liberation movement as the driving force for this change. While not to deny the importance of attitudes, this area is a good one in which to get students to explore the economic forces that lie behind social attitudes and change. Get them to think about the technological advances that have contributed to more women being in the labor force. Many goods that were previously produced in the household are now mass‐produced and available for purchase— most items of prepared food, for example. New appliances have increased productivity in the home enabling household production in less time—laundry, kitchen, and cleaning equipment for example. The market provides new goods and services that households want but can’t readily make at home—home entertainment equipment (TV, CD, DVD, etc) for example. These changes lead to many families deciding to have two income earners rather than the older tradition of one. It is interesting to let students discuss what they think will happen to the labor force participation rates in the future and whether or not they think they will ever be equal—or unequal in the opposite direction!

Alternative Measures of Unemployment The official measure of unemployment does not include marginally attached workers and people who work part time for economic reasons. The Bureau of Labor Statistics (BLS) now provides three broader measures of the unemployment rate, known as U-4, U-5, and U-6, that include these wider groups of the jobless. The official unemployment rate is called U-3 and there are two narrower measures U-1 and U-2.

U-1 Unemployed for 15 weeks or more U-2 People laid off or had a temporary job U-3 Total (official) unemployment. (as percentages of labor force)

U-4 U-3 plus discouraged workers U-5 U-4 plus other marginally attached workers U-6 U-5 plus part time for economic reasons (as percentages of labor force plus unemployed in the added category)

Each measure of the unemploy-ment rate rises during each recession … and falls between recessions.

6.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Why unemployment rate is never zero? We distinguish among three types of unemployment: Frictional unemployment Structural unemployment Cyclical unemployment It comes as a shock to most students that unemployment has benefits as well as costs and that there is an efficient amount of unemployment that is greater than zero. (Note that this statement is positive!) You might like to spend a bit of class time on this topic. If you do, here are some ideas about what to do: A good way to introduce the idea that unemployment brings benefits is to think about the unemployment of things rather than people. Look around the campus and notice all the unemployed automobiles in the parking lots/stations. Notice the unemployed class rooms early in the morning and late at night. Notice the unemployed coffee shop seats at peak lecture times. Look around the city and notice all the unemployed automobiles in the car sales lots. Try to make a reservation at any of the hotels in the city and notice that you can almost always get a room—hence, lots of unemployed hotel rooms. Now ask: does all this unemployment bring benefits? The students quickly see that it would be very costly to organize rental markets in which cars don’t sit idle all day, and so on. [Continued on next slide]

Frictional unemployment is the unemployment that arises from normal labor turnover—from people entering and leaving the labor force and from the ongoing creation and destruction of jobs. For example, a graduate interviewing for his first job. Ask your class if anyone they know has been laid off. Then discuss whether losing a job creates frictional, structural, or cyclical unemployment. Look at your local examples. If you live in a steel‐producing area, for example, you can talk about local structural unemployment arising from the closing of a steel manufacturer due to international competition. For cyclical unemployment, ask students how they think the business cycle and cyclical unemployment is related to full‐time enrolment at higher education institutions. Students often don’t think there is any relationship. But nationally during a recession the growth rate of full‐time enrolment increases. Ask students if they can explain this relationship. The answer is that during a recession and due to the increase in cyclical unemployment, the opportunity cost of school decreases. This is a great way to keep students thinking about marginal benefits and costs.

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. For example, when banks introduced the automatic teller machine in the 1970s, many bank-teller jobs were destroyed.

Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion. For example, during the recession of 2008–2009, many workers were laid off as business activity declined.

“Natural” Unemployment “Natural” unemployment is the unemployment that arises from frictions and structural change when there is no cyclical unemployment—when all the unemployment is frictional and structural. Natural unemployment rate is the natural unemployment as a percentage of the labor force.

Full employment occurs when the unemployment rate equals the natural unemployment rate. At full employment, all the unemployment is frictional or structural—and cyclical unemployment = 0. The major influences on natural unemployment are: Age distribution of the population The pace of structural change The real wage rate Unionization rate Unemployment benefits

Unemployment and Real GDP Cyclical unemployment is the fluctuating unemployment over the business cycle—unemployment increases during recessions and decreases during expansions. At full employment, there is no cyclical unemployment. At the business cycle trough, cyclical unemployment is positive. At the business cycle peak, cyclical unemployment is negative.

Potential GDP is the value of real GDP when the economy is at full employment. Because the unemployment rate fluctuates around the natural unemployment rate, real GDP fluctuates around potential GDP: When the unemployment rate is above the natural rate, real GDP is below potential GDP. When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP.

When the economy is at full employment, real GDP equals potential GDP and there is no output gap. Output gap equals real GDP minus potential GDP, expressed as a percentage of potential GDP. When the unemployment rate is above the natural rate, real GDP is below potential GDP and the output gap is negative. When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP and the output gap is positive.

Figure 6.6 shows this relationship. The unemployment rate fluctuates around the natural unemployment rate: Falling below the natural rate when cyclical unemployment is negative. Rising above natural rate when cyclical unemployment is positive.

As the unemployment rate fluctuates around the natural unemployment rate in part (a), the output gap fluctuates around zero in part (b). When the unemployment rate is below the natural rate, the output gap is positive. When the unemployment rate exceeds the natural rate, the output gap is negative.

During a recession, the unemployment rate exceeds the natural unemployment rate in part (a), and … the output gap in part (b) is negative.

Some people are unemployed for a week or two and others for a year or more.
The average duration of unemployment varies over the business cycle—increasing in a recession and decreasing during an expansion. In 2000, at a cycle peak when the unemployment rate was below the natural unemployment rate at 4 percent, the median time to find a job was 6 weeks. In 2013, in a slow expansion when the unemployment rate was above the natural unemployment rate at 7.5 percent, the median time to find a job was 16 weeks. 48

The figure shows the percentage unemployed at four unemployment durations.
Long-term unemployment (purple bar) barely exits at a business cycle peak in 2000, but it is large in 2013. 49

Question 1 Which of the following is an example of structural unemployment? Alfred the VCR repairman is unemployed because there are very few people that still own VCRs Bernie the construction worker is unemployed because no one is building houses right now Carl the restaurant chef is unemployed because he and his wife recently moved to a new city Clicker Question Correct answer: A Structural unemployment is unemployment caused by changes in the industrial makeup (structure) of the economy. We no longer have VCRs, so we don’t need VCR repairmen.

Question 2 Which of the following is an example of frictional unemployment? Alfred the VCR repairman is unemployed because there are very few people that still own VCRs Bernie the construction worker is unemployed because no one is building houses right now Carl the restaurant chef is unemployed because he and his wife recently moved to a new city Clicker Question Correct answer: C This is “natural” since Carl won’t find a job instantly. He may look for a while. Answer B could be cyclical unemployment, a sign of a recession.

Question 3 Who is considered unemployed?
Jean, a college student who is currently not working Zoe, a recent college graduate who sent out job application, but has yet to hear back from the businesses Michael, a stay-at-home dad All of the above Clicker Question Correct answer: B Full-time students and people who are currently not looking for jobs are not considered in the labor force and are therefore not considered unemployed. If Michael’s kids go to college and he starts looking for a job, he will then re-enter the labor force.

Question 4 If a discouraged worker re-enters the labor force and begins searching for jobs but doesn’t find one, the unemployment rate will: Go down because our economy is on the right track with more people wanting to work Stay the same because the number of people with jobs didn’t change Stay the same because the worker isn’t counted in the labor force until he finds a job again Increase because the percentage of labor force participants with jobs decreased Clicker Question Correct answer: D Due to the way unemployment is counted, you can actually have increased unemployment when a recession is ending. This is because more people re-enter the labor force, but they may not find a job immediately. Thus, they are unemployed.

Question 5 What is a possible unintended consequence of unemployment insurance? It hurts the unemployed by giving them benefits It may increase the length of unemployment since it decreases the cost of being unemployed It angers hard-working people It lasts as long as you want it to, so you can get paid and never have to work Clicker Question Correct answer: B Once again, it’s about incentives. With unemployment insurance, you still get paid (even though you are not working). You may still want to get a job, but the fact that you’re still receiving money may make you not try as hard to get that next job.

The Human Disaster: Key Findings 50% to 100% increase in death rates for older male workers in the years immediately following a job loss Increased.

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The Human Disaster: Key Findings 50% to 100% increase in death rates for older male workers in the years immediately following a job loss Increased.

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