1. Unemployment
Chapter 6

2. The Labor Force
The labor force includes all persons over age sixteen who are either working for pay or actively seeking paid employment.
People who are not employed or are not actively seeking work are not considered part of the labor force.

3. The Labor Force
The labor-force participation rate is the percentage of the population working or seeking employment.

4. The Labor Force, 2003 Total population (291 million)
Out of the labor force (144 million)
In civilian labor force (147 million)
Under age 16 (68.7 million)
Civilians employed(137.8 million)
Homemakers (20,343,000)
Unemployed(8.8 million)
Armed forces (1.5 million)
In school (9,130,000)
Retired (29,813,000)
Sick and disabled (7,142,000) Institutionalized (4.1 million) Other (489,000)

5. A Growing Labor Force Participation Rates (age 16 and older) Year Men
Women
1950
86.4
33.9
1960
83.3
37.7
1970
79.7
43.3
1980
77.4
51.5
1990
76.4
57.5
2000
74.7
60.0
2004
73.5
59.5

6. Growth of Production Possibilities
Production is limited by two factors:
The availability of factors of production.
Technological know-how.

7. Production Possibilities
A growing labor force creates long-run economic growth.
Economic growth is an increase in output (real GDP); an expansion of production possibilities.

8. Institutional Constraints
Production possibilities in any year depend on available resources and technology and on how we choose to restrict their use.
The size of labor force is limited by participation rates and social regulation.

9. Labor Force Growth Consumption Goods (units per year) B A
Investment Goods (units per year) O C
Labor-force growth increases production possibilities H G F D

10. Unemployment
To make full use of available production capacity, the labor force must be fully employed.
Unemployment is the inability of labor-force participants to find jobs.

11. Okun’s Law
Okun’s Law asserts that 1% more unemployment is estimated to equal 2 percent less output.

12. Measuring Unemployment
U.S. Census Bureau surveys about 60,000 households a month to determine how many people are actually unemployed.
A person is considered unemployed if he or she is not employed and is actively seeking a job.

13. The Unemployment Rate
The unemployment rate is the proportion of the labor force that is unemployed.

14. Unemployment Isn’t Experienced Equally by Race or Sex

15. Unemployment Isn’t Experienced Equally by Education

16. Duration of Unemployment
When the economy is growing, both unemployment rates and the average duration of unemployment decline.

17. Duration of Unemployment:

18. Reasons for Unemployment
How long a person remains unemployed is affected by the nature of the joblessness.
Job leavers
Job losers
Reentrants
New entrants

19. Reasons for Unemployment
Job losers 55%
Reentrants 28%
New entrants 8%
Job leavers 9%

20. Discouraged Workers
A discouraged worker is an individual who is not actively seeking employment but would look for or accept a job if one were available.
Discourage workers are not counted as part of the unemployment problem after they give up looking for a job.

21. Underemployment
Underemployed workers represent labor resources that are not being fully utilized.
Underemployment exists when people seeking full-time paid employment work only part time or are employed at jobs below their capability.

22. The Phantom Unemployed
Some of the people who are counted as unemployed probably should not be.
Many people report that they are actively seeking work when they have little interest in finding a job.

23. The Phantom Unemployed
Public policy encourages this behavior by requiring most welfare and unemployment benefit receivers to provide evidence that they are looking for work.

24. Europe’s Unemployment Woes
Unemployment levels in Europe are much higher than those of the U.S.
Analysts blame both sluggish economic growth and high unemployment benefits.

25. Europe’s Unemployment Woes
United Kingdom
Japan
United States
Australia
Canada
Belgium
Italy
Germany
France
Spain
5.0%
5.3%
6.9%
9.3%
8.1%
8.8%
11.3%
6.0%
6.1%

26. The Human Costs
The most visible impact of unemployment on individuals is loss of income
The human cost of unemployment includes social, physical, and psychological costs as well.

27. Defining Full Employment
Full employment is not the same as zero unemployment.

28. Seasonal Unemployment
Seasonal unemployment is the unemployment due to seasonal changes in employment or labor supply.
At the end of each season, thousands of workers must go searching for new jobs, experiencing seasonal unemployment in the process.

29. Frictional Unemployment
Frictional unemployment is the brief periods of unemployment experienced by people moving between jobs or into the labor market.

30. Frictional Unemployment
Frictional unemployment differs from other unemployment in three ways:
There is an adequate demand for the labor of the frictionally unemployed.
The frictionally unemployed have the skills required for existing jobs.
The job-search period will be relatively short.

31. Structural Unemployment
Structural unemployment is the unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.

32. Cyclical Unemployment
Cyclical unemployment is the unemployment attributable to the lack of job vacancies – i.e., to an inadequate level of aggregate demand.

33. The Unemployment Record

34. Slow Growth
The economy must grow at least as fast as the labor force to avoid cyclical unemployment.

35. The Full-Employment Goal
In the Employment Act of 1946, Congress committed the federal government to pursue a goal of “maximum” employment.
Congress didn’t specify what the rate of unemployment should be.

36. The Full-Employment Goal
A full employment goal presumably means avoiding as much cyclical and structural unemployment as possible, while keeping frictional unemployment reasonably low.

37. Inflationary Pressures
In the early 1960s, the council of economic advisors concluded that rising prices are a signal that employment is nearing capacity.
The Council placed full employment at 4% — below that, prices begin rising.

38. Changes in Structural Unemployment
During 1970s and early 1980s the 4% unemployment goal was considered too high.

39. Redefining Full Employment
Critics suggested that structural barriers to full employment had gotten worse.
More youth and women.
Liberal transfer payments.
Structural changes in demand.

40. Redefining Full Employment
In 1983, the Reagan administration concluded that the “inflation-threshold” unemployment rate was between six and seven percent.

41. Declining Structural Pressures
The structural barriers that intensified inflationary pressures in the 1970s and early 1980s receded in the 1990s.
Made it easier to lower unemployment rates without increasing inflation.

42. The “Natural” Rate of Unemployment
The natural rate of unemployment is the long-term rate of unemployment determined by structural forces in labor and product markets.
The “natural” rate of unemployment consists of frictional and structural components only.

43. Congressional Targets
The Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act) set 4% unemployment rate and 3% inflation as a national goal.

44. The Historical Record
During the Great Depression as many as one-fourth of the labor force was unemployed.
Unemployment rates fell dramatically during World War II — the civilian unemployment rate reached 1.2 percent.

45. The Historical Record
Since 1950, unemployment rate has fluctuated from a low of 2.8 percent during the Korean War (1953) to a high of 10.8 percent during the recession.

46. The Historical Record
From 1982 to 1989, unemployment fell, but shot up again in the recession.
Unemployment fell steadily during the last half of the 1990s.
The unemployment rate rose sharply in late 2001.

47. Unemployment
End of Chapter 6