1. Module The Meaning and Calculation of Unemployment12
Module The Meaning and Calculation of Unemployment
KRUGMAN'S
MACROECONOMICS for AP*
Margaret Ray and David Anderson

2. What you will learn in this Module:
How is unemployment measured?
How is the unemployment rate calculated?
Why is unemployment significant?
Is there a relationship between economic growth and unemployment?

3. Defining and Measuring Unemployment
Employed
Unemployed: want to work, cannot find work, have looked for a job within the last 4-6 weeks
Labor Force: employed + unemployed
Note: it might be interesting to find the latest monthly employment report and bring relevant tables into the class to show the students how these statistics are presented by the Bureau of Labor Statistics.
The BLS narrows the population by categorizing only those citizens above the age of 16 who are not institutionalized (not in prisons, the Armed Forces, etc).
The population is then divided into three groups:
those who are working at least one hour per week (Employed)
those who were not working at least one hour, but were seeking work (Unemployed)
and those “not in labor force,”
The Labor Force = Employed + Unemployed
Two important measures can then be derived.
labor force participation rate: the percentage of the working­ -­ age population that is in the labor force, is calculated as follows:
LFPR% = 100*(LF)/(civilian population 16 and older)
Unemployment rate: the percentage of the labor force that is not employed.
UR% = 100*(# unemployed)/(# Labor Force)
Labor Force Participation Rate
Unemployment Rate

4. The Significance of the Unemployment Rate
Indicator of employment opportunity
Overstating the true level of unemployment
Understating the true level of unemployment
marginally attached workers: would like to work, aren’t looking, doing something else
discouraged workers: would like to work, quit looking
Underemployed: has a job but needs more work
Note: Remind the students of the business cycle that shows the ebb and flow of the macroeconomy. Discuss what is happening when the economy is weakening.
This is also a good opportunity to review the circular flow model.
Example of a recession:
Firms are producing less output because consumers are buying fewer products.
With fewer customers, firms need fewer workers.
As workers are laid off, the unemployment rate begins to rise.
So a weakening economy shows up as a rising unemployment rate.
But the UR is not a perfect measure of the true strength or weakness of the labor market and economy.
Example:
The economy is weak and Jim has had his hours cut from 40 per week to 10. Jim is still employed, but he has certainly seen a decrease in his weekly income.
Terri has a Master’s degree, but can only find work as a barista in a coffee shop. She is also employed, but not in a job that matches her skills.
The unemployment rate will not capture these forms of underemployment.
Jerome has been unsuccessfully seeking work for nearly a year, and finally decides to give up. People like Jerome are classified as discouraged workers and are not counted as unemployed, they are out of the labor force.
The presence of underemployed workers and discouraged workers causes the official unemployment rate to appear lower (better) than the actual labor market conditions.
Note: you can find the number of discouraged workers in the BLS reports. Show the students what happens to the UR when you add discouraged workers to the ranks of the unemployed.

5. The Significance of the Unemployment Rate

6. Practice The labor force participation rate is:
The number of people in the labor force divided by the population
The number of people in the labor force divided by the civilian, noninstitutionalized age 16 and over population
The number of people in the noninstitutionalized age 16 and over population divided by the labor force
The number of unemployed divided by the labor force
The number of unemployed divided by the civilian, noninstitutionalized age 16 and over population
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

7. Practice
Nabiha is currently not employed, but she’s thinking about getting a job and looks online frequently to see what kinds of jobs are available. The Bureau of Labor Statistics would consider her to be:
Employed
In the labor force
Not in the labor force
A discouraged worker
None of the above
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

8. Practice
Rebecca lost her real estate agent job after the housing bubble burst, and after a few months of unsuccessfully looking for a job, she stopped looking and entered a job retraining program to become a nurse. She would currently count as:
Employed
Unemployed
In the labor force
Not in the labor force
Seasonally unemployed
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

9. Practice
Suppose the population is 300 million. There are 146 employed, and 7.2 million unemployed. The unemployment rate is:
2.4%
4.6%
4.9%
5.3%
Insufficient data
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

10. Practice
Suppose the population is 300 million. There are 146 million employed, 7.2 million unemployed, but 1 million of those unemployed give up on finding a job. The unemployment rate is:
2.1%
2.4%
4.1%
4.7%
Insufficient data
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

11. People with less than a high school diploma
Practice - discussion
Which of the following groups has not historically and consistently experienced unemployment rates higher than the average worker?
African Americans
Hispanics and Latinos
Teenagers
People with less than a high school diploma
Women
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

12. A marginally attached worker
Practice
Fernando lost his job as a computer programmer during the last recession, and could only find part-time work at a local grocery store. Fernando is:
Unemployed
Underemployed
A discouraged worker
Not in the labor force
A marginally attached worker
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.

13. Growth and Unemployment
Recessions and unemployment
Economic expansions and unemployment
Caveat: does growing real GDP always strongly affect employment?
Relationship between economic growth and unemployment:
1) Graph
2) Circular Flow Diagram
Note: ask the students construct a graph with real GDP on the x-axis and the unemployment rate on the y-axis and draw a curve that might show how these two macro measures are related. If they have read the chapter, this will not be much of a challenge, but a good thought experiment anyway.
Have the students think about what the curve should look like. Again, you can relate this to the circular flow model. Students should draw a downward sloping function.
The instructor can now refer the students to the same scatter graph in the text.
Note that the growth rate of real GDP is on the horizontal axis and that growth rate can be negative, but unemployment rates cannot.
Even when the economy is very strong, the unemployment rate is not zero.