1. Measurement & Analysis
Unemployment
Measurement & Analysis
9.7%

2. How Is Unemployment Measured?
The unemployment rate is calculated as the percentage of the labor force that is unemployed.
Unemployme
nt rate =
Number une
mployed
Labor forc e
100
Labor Force includes people over 16
with a job or looking for a job

3. Breakdown by Population
Unemployment Rate
Calculation:
Adult
Population
(228.7 million)
Employed
(136.4 million)
Labor Force
(151 million)
14.6/151 =
= 9.7%
Unemployed (14.6 million)
Not in labor force
(77.0 million)

4. Why go to College? Less Than High School: 15.6%
Unemployment by education level in 2010
when overall unemployment = 9.6%
Less Than High School: %
High School Graduate: %
Less Than a Bachelor’s %
College Graduate %

5. 4-Types of Unemployment
Structural
Skills do not match demand for labor
Cyclical
Related to business cycle-----too low a level of GDP growth (occurs during recessions or periods of slow growth)
Frictional
Temporarily between Jobs or new to labor force
Seasonal
Out of work based on time of year

6. Natural Rate of Unemployment
What: Unemployment that does not go away in long run
Also called “Full Employment” (know this!)
Equals the rate without cyclical unemployment
Also, total of frictional & structural (seasonal is adjusted out)

7. Calculating the Natural Rate
Economists debate actual level
Was considered to be 5-6% before the 1990’s
2006 considered 4-5%
We will use
4.5% for
Natural rate
(Full Employment)
Critical Thinking:
Why is it lower today?
Many Reasons:
Improved Job. Info on internet
Temporary Work Agencies
New Welfare Laws

8. Low Unemployment & Inflation
Business competes for workers
Wages begin to increase =>
The cost of doing business rises
Leads to “cost push” inflation
As unemployment rate falls
Below full employment

9. Unemployment Rate vs. Natural Rate
When is
the economy
clearly strong below?
Percent of
Labor Force 10
Unemployment rate 8 6
Natural rate of
unemployment 4
If unemployment rate is less than
Full Employment, things are good! 2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
BUT!---inflationary pressures rise

10. Cyclical
Structural
4-Types of
Unemployment
Seasonal
Frictional