1. A measure of wasted resources: Wasted labor hours and capital
Unemployment
A measure of wasted resources: Wasted labor hours and capital
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(c) 2002 Claudia Garcia-Szekely

2. Measuring Unemployment Since 1940
Bureau of Labor Statistics (BLS) part of the Department of Labor.
Data compiled from Current Population Survey (monthly, 60,000 households)
Data does not come from unemployment insurance (UI) records…
Monthly surveys
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(c) 2002 Claudia Garcia-Szekely

3. Labor Force Participation Rate =
Total Population
16 years and older (Active)
Non Institutional
Employed
Unemployed
Not in the Labor Force
Institutional
Nursing homes, prisons and active duty in the Armed Forces
Children
(Non-Active )
154Mill
140 Mill
14 Mill
Labor Force = Employed + Unemployed
140 Mill
63.4%
154Mill
Labor Force Participation Rate =
Labor Force
x 100
Active Population
239 Mill
14 Mill
243 Mill
243 Mill
85 Mill
14 Mill
9.09%
Unemployed
Unemployment Rate =
x 100
309 Mill
Labor Force
154 Mill

4. (c) 2002 Claudia Garcia-Szekely
Employed
Full time, part time or temporary work.
Worked at least ONE hour or more for pay or profit during the survey week.
Worked 15 hours or more without pay in a family business.
Temporarily absent from work
Illness, vacation, labor dispute, etc.
Persons 16 years and over in the civilian noninstitutional population who, during the reference week,
did any work at all (at least 1 hour) as paid employees;
worked in their own business, profession, or on their own farm, or
worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family;
and
(b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs.
Each employed person is counted only once, even if he or she holds more than one job.
Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.
(c) 2002 Claudia Garcia-Szekely

5. (c) 2002 Claudia Garcia-Szekely
Unemployed
Made specific efforts to find a a job.
Waiting to be called back to a job from which they were temporarily laid off.
Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.
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(c) 2002 Claudia Garcia-Szekely

6. (c) 2002 Claudia Garcia-Szekely
Not in the Labor Force
Do not have a job and are not looking for a job.
Retired
Full time students
Home makers
Volunteers
Institutional Population.
Mental Institutions
Prison
Military
The survey is designed so that each person age 16 and over who is not in an institution such as a prison or mental hospital or on active duty in the Armed Forces is counted and classified in only one group.
Military personnel This segment of the population is excluded from the civilian labor force because military personnel are not considered as resources available for productive activity. Moreover, the military operates under its own set of "employment" rules, apart from resource and labor markets that exist in the rest of the economy. The reasoning behind excluding this segment is perhaps most obvious during periods of rising and declining military activity (that is, during and immediately after wars). If military personnel are included in the labor force, then a major movement of civilians into the military has no apparent affect on the labor resources available for productive activity, when in fact, the quantity of labor available for domestic production declines.
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(c) 2002 Claudia Garcia-Szekely

7. Is Unemployment Measured Correctly?
No. There are three problems with the way we measure unemployment
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(c) 2002 Claudia Garcia-Szekely

8. (c) 2002 Claudia Garcia-Szekely
1. Discouraged Workers
Someone who gave up looking for a job.
NOT counted as unemployed
Should be included as unemployed: they are part of the active population and would work if a job was available.
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(c) 2002 Claudia Garcia-Szekely

9. 1M give up looking for work
LF = =154
Ur =
16/154=10.4%
New LF = 154-1=153 16
138
Employed
Unemployed
New Ur =
15/153=9.8%
Unemployed
16-1=15
An increase in the number of discouraged workers shows up as a decrease in the unemployment rate!
Discouraged Worker Effect

10. Discouraged Worker Effect.
The longer the recession lasts, the less accurate the Ur

11. (c) 2002 Claudia Garcia-Szekely
Discouraged Workers
Thousands
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(c) 2002 Claudia Garcia-Szekely

12. Employed: Worked at least ONE hour or more for pay or profit
Unemployment Rate is Not Accurate
Employed: Worked at least ONE hour or more for pay or profit
Some PT workers would work full time if a job was available.
They should be counted –at least partially- as unemployed.

13. (c) 2002 Claudia Garcia-Szekely
6/20/2018
(c) 2002 Claudia Garcia-Szekely

14. Employed: Worked at least ONE hour or more for pay or profit
Unemployment Rate is Not Accurate
Employed: Worked at least ONE hour or more for pay or profit
Underemployed individuals are counted as employed even though their skills are not
No official statistics on underemployment (Difficult to develop objective criteria)
Because of the difficulty of developing an objective set of criteria which could be readily used in a monthly household survey, no official government statistics are available on the total number of persons who might be viewed as underemployed. Even if many or most could be identified, it would still be difficult to quantify the loss to the economy of such underemployment.

15. Unemployment Rate: Three Misrepresentations
Not counted as Unemployed
Underestimate
true
Unemployment
Discouraged
Workers
Counted as employed
Part Time
Workers
Under-employed
Workers
Counted as employed

16. Unemployment is never ZERO

17. Three Types of Unemployment
Structural: workers who do not have skills currently in demand
There is no job for them.
Frictional: workers who have the necessary skills
There is a job for them
Cyclical: workers have the necessary skills for the job, but lack of demand prevents firms from hiring them back.

18. Unemployment Rate is Never Zero
Frictional 4%
Natural
Rate of
Unemployment
Between Jobs 4%
NRU=5%
Unemployed due to lack of skills 1%
Structural 1%
Ur=10%
Recession Ends
Unemployed due to recession 5%
Cyclical 5%
Zero Cyclical
Unemployment

19. Lowest Unemployment: 4%-5%
Natural Unemployment
Frictional 4%
Structural 1%
Lowest Unemployment: 4%-5%

20. zero Cyclical unemployment
Potential GDP:
GDP at Full Employment
zero Cyclical unemployment
Above Full employment
Every year we could produce more
GDP
At Full employment
Below Full employment
Time

21. 1. Unemployment Increase Inequality
Costs of Unemployment
1. Unemployment Increase Inequality
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22. Lowest Unemployment: 4%-5%
Teens 27%
Black 17%
Hispanic 13%
Teens 16%
Men 10%
All 10%
White 9%
Women 8.3%
Black 8%
Asian 8%
Hispanic 6%
All 5%
Women 4.5%
Men 4.5%
White 4%
Asian 4%
Worst: 2010
2016
Lowest Unemployment: 4%-5%

23. 2. Lost Production: Okun’s Law GDP*0.025 in lost Goods and Services
Costs of Unemployment
2. Lost Production: Okun’s Law
1% Unemployment = 2.5% of GDP
1% unemployment =
GDP*0.025 in lost Goods and Services
Textbook has 3%…
14,000B *0.025 Lost Output
350Billion Lost

24. Okun’s Law: an example
NRU = 5% GDP= 12T Ur = 9% Extra Unemployment = 9 – 5 = 4% For each 1% extra unemployment we lose 2.5% of GDP: % Lost GDP = 4(2.5) = 10% Lost GDP = 12T (0.10)= 1.2T Lost Production that can not be recovered

25. 3. Increase Suicide Rates
Costs of Unemployment
3. Increase Suicide Rates
video
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(c) 2002 Claudia Garcia-Szekely

26. Phillips Curve: Trade off between inflation and unemployment
Years of High
Inflation
To reduce inflation by 1%, unemployment must increase 2% above the natural rate
Inflation 1% 2%
Years of Low
Inflation
Years of Low
Unemployment
High
Unemployment
Unemployment

27. Inflation Unemployment
To drop Inflation by 6% points
Inflation
Unemployment
10%
Increase unemployment by 12% points

28. How do we Fight Inflation?
Joblessness
Slowing down Aggregate Demand for goods and services

29. 4.8%

30. Majority find jobs in less than 5 weeks
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(c) 2002 Claudia Garcia-Szekely

31. Majority are unemployed for more than 6 months
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(c) 2002 Claudia Garcia-Szekely

32. (c) 2002 Claudia Garcia-Szekely
Less than HS
11.2%
7.9%
HS graduates
6.7%
Some College
3.8%
Bachelor Degree and higher
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(c) 2002 Claudia Garcia-Szekely

33. (c) 2002 Claudia Garcia-Szekely
How do you protect yourself from unemployment?
STAY IN SCHOOL
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(c) 2002 Claudia Garcia-Szekely