1. CHAPTER 7 Measuring Employment and Unemployment
Michael Parkin
ECONOMICS 5e
CHAPTER 7 Measuring Employment and Unemployment
Chapter 24 in Economics

2. Learning Objectives
Define the unemployment rate, the labor force participation rate, the employment-to- population ratio, and aggregate hours
Describe the trends and fluctuations in the indicators of labor market performance

3. Learning Objectives (cont.)
Describe the sources of unemployment, its duration, and the groups that are most affected by it
Describe the relationship between employment, unemployment, and real GDP

4. Learning Objectives
Define the unemployment rate, the labor force participation rate, the employment- to-population ratio, and aggregate hours
Describe the trends and fluctuations in the indicators of labor market performance

5. Employment and Wages Population Survey
Every month, the U.S. Census Bureau surveys 60,000 households and asks a series of questions about the age and job market status of its members.
Called the Current Population Survey

6. Employment and Wages Population Survey (cont.)
The working age population is the total number of people aged 16 years an over who are not in a jail, hospital, or some other form of institutional care.

7. Employment and Wages Population Survey (cont.)
The working age population is divided into those in the labor force and those not in the labor force.
The labor force is divided into the employed and the unemployed.

8. Employment and Wages
To be counted as unemployed, a person must be available for work and must be in one of three categories:
1) Without work but has made specific efforts to find a job within the previous four weeks

9. Employment and Wages
To be counted as unemployed, a person must be available for work and must be in one of three categories:
2) Waiting to be called back to a job from which he or she has been laid off

10. Employment and Wages
To be counted as unemployed, a person must be available for work and must be in one of three categories:
3) Waiting to start a new job within days

11. Population Labor Force Categories
Instructor Notes:
1) The population is divided into the working-age population and the young and institutionalized.
2) The working-age population is divided into the labor force and those not in the labor force.
3) The labor force is divided into the employed and the unemployed

12. Employment and Wages Three Labor Market Indicators
The unemployment rate
The labor force participation rate
The employment-to-population ratio

13. Employment and Wages
The unemployment rate is the percentage of the people in the labor force who are unemployed.
Unemployment rate =
Number of
people unemployed
Labor force
 100

14. Employment and Wages Labor force = Number of people employed
+ Number of people unemployed

15. Working age population
Employment and Wages
The 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
 100

16. Employment and Wages Discouraged Workers
People who are available and willing to work but have made not made specific efforts to find a job within the previous four weeks.

17. Employment and Wages
The employment-to-population ratio is the percentage of people of working age who have jobs.
Employment-to-
population ratio =
Number of people
employed
Working-age
population
 100

18. Employment, Unemployment, and the Labor Force: 1960–1996
Instructor Notes:
1) The unemployment rate increases in recessions and decreases in expansions.
2) the labor force participation rate and the employment to population ration have upward trends and fluctuate with the business cycle.
3) The employment-to-population ration fluctuates more than the labor force participation rate and reflects cyclical fluctuations in the unemployment rate.
4) Fluctuations in the labor force participation rate arise mainly because of discouraged workers.

19. Learning Objectives
Define the unemployment rate, the labor force participation rate, the employment-to- population ratio, and aggregate hours
Describe the trends and fluctuations in the indicators of labor market performance

20. The Changing Face of the Labor Market
Instructor Notes:
1) The upward trends in the labor force participation rate and the employment-to-population ratio are accounted for mainly by the increasing participation of women in the labor market.
2) The male labor force participation rate and employment-to-population ratio have decreased.

21. Employment and Wages Aggregate Hours
The indicators previously studied are useful signs of the health of the economy.
However, they do not measure the productivity of labor.

22. Employment and Wages
Aggregate hours are the total number of hours worked by all the people employed, both full time and part time, during a year.

23. Aggregate Hours: 1960–1998 Instructor Notes:
1) Aggregate hours measure the total labor used to produce real GDP more accurately than does the number of people employed because an increasing proportion of jobs are part time.
2) Between 1960 and 1996, aggregate hours increased by an average of 1.5 percent a year.
3) Fluctuations in aggregate hours coincide with business cycle fluctuations.

24. Aggregate Hours: 1960–1998 Instructor Notes:
Aggregate hours have increased at a slower rate than the number of jobs because the average workweek has shortened, as shown in the graph.

25. Employment and Wages Wage Rates
The real wage rate is the quantity of goods and services that an hour's work can buy.
Equals the money wage rate divided by the price level

26. Real Wage Rates: 1960 – 1998 Instructor Notes:
1) The average hourly real wage rate of private manufacturing nonsupervisory workers peaked in 1978 and then fell through 1993.
2) Broader measures of the average hourly real wage rate increased.
3) All the official measures show a productivity growth slowdown during the 1970s.
4) An unofficial view is that inflation has been overestimated by 1.1 percent a year and the real wage rate has increased at roughly a constant rate.

27. Learning Objectives (cont.)
Describe the sources of unemployment, its duration, and the groups that are most affected by it
Explain how employment and wage rates are determined by demand and supply in the labor market

28. Unemployment and Full Employment
People become unemployed if they:
1) Lose their jobs and search for another job.
2) Leave their jobs and search for another job.
3) Enter or reenter the labor force to search for a job.

29. Unemployment and Full Employment
Job losers are people who are laid off, either permanently or temporarily.
Biggest source of unemployment.
Numbers fluctuate considerably.
Job leavers are people who voluntarily quit their jobs.
Smallest and most stable source of unemployment.

30. Unemployment and Full Employment
Entrants are people who are entering the labor force.
Reentrants are people who have previously withdrawn from the labor force.
Reentrants/entrants are a large component of the unemployed.
Numbers fluctuate mildly.

31. Labor Market Flows Instructor Notes:
1) Unemployment results form employed people losing or leaving their jobs (job losers and job leavers) and from people entering the labor force (entrants and reentrants).
2) Unemployment ends because people get hired or recalled or because they withdraw from the labor force.

32. Unemployment by Reasons
Instructor Notes:
1) Everyone who is unemployed is either a job loser, a job leaver, or an entrant or reentrant into the labor force.
2) Most of the unemployment that exists results from job loss.
3) The number of job losers fluctuates more closely with the business cycle than do the numbers of job leavers and entrants and reentrants.
4) Entrants and reentrants are the second most commonly unemployed people.
5) Their number fluctuates with the business cycle because of discouraged workers.
6) Job leavers are the least common unemployed people.

33. Unemployment by Duration
Less than 5 weeks
5-14 weeks
Business cycle peak
15-26 weeks
Business cycle trough
Instructor Notes:
1) In the business cycle peak of 1989, when the unemployment rate was 5.3 percent, 49 percent of unemployment lasted for less than 5 weeks and 30 percent lasted for 5 to 14 weeks.
2) So 79 percent of unemployment lasted for less than 15 weeks, and 21 percent lasted for 15 weeks or more.
3) In the business cycle trough of 1983, when the unemployment rate was 9.7 percent, 33 percent of unemployment lasted for less than 5 weeks and 27 percent lasted for 5 to 14 weeks.
4) So 60 percent of unemployment lasted for less than 15 weeks, and 40 percent lasted for 15 weeks or more.
27 weeks and over 10 20 30 40 50
Percentage of unemployment

34. Unemployment by Demographic Group
Black males 16-19
Black females 16-19
White males 16-19
White females 16-19
Business cycle peak
Black males 20 and over
Black females 20 and over
Business cycle trough
Instructor Notes:
1) Black teenagers experience unemployment rates that average three times those of white teenagers, and the unemployment rates of teenagers are much higher than those of people aged 20 years and over.
2) Even in a business cycle trough, when unemployment is at its highest rate, only 6 percent of whites aged 20 years and over are unemployed.
White males 20 and over
White females 20 and over 10 20 30 40
Unemployment rate

35. Unemployment and Full Employment
There are three types of unemployment:
1) Frictional
2) Structural
3) Cyclical

36. Unemployment and Full Employment
Frictional Unemployment
Arises from normal labor turnover — people entering and leaving the labor force and the creation and destruction of jobs
Influenced by unemployment benefits

37. Unemployment and Full Employment
Structural Unemployment
Arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
Typically lasts longer than frictional

38. Unemployment and Full Employment
Cyclical Unemployment
Arises from the fluctuations of the business cycle
Increases during a recession and decreases during and expansion
The natural rate of unemployment excludes cyclical unemployment

39. Unemployment and Full Employment
Full employment exists when the unemployment rate equals the natural rate of unemployment.
It fluctuates periodically
Economists disagree about the size of the natural rate and the extent to which it fluctuates

40. Learning Objectives (cont.)
Describe the sources of unemployment, its duration, and the groups that are most affected by it
Describe the relationship between employment, unemployment, and real GDP

41. Unemployment and Real GDP
Instructor Notes:
1) As real GDP fluctuates around potential GDP (part a), the unemployment rate fluctuates around the natural rate of unemployment (part b).
2) In the deep recession of 1982, unemployment reached almost 10 percent.
3) In the miler recession of , the unemployment rate peaked at less than 8 percent.
4) The natural rate of unemployment decreased during the 1980s and 1990s.

42. Unemployment and Real GDP
Instructor Notes:
1) As real GDP fluctuates around potential GDP (part a), the unemployment rate fluctuates around the natural rate of unemployment (part b).
2) In the deep recession of 1982, unemployment reached almost 10 percent.
3) In the miler recession of , the unemployment rate peaked at less than 8 percent.
4) The natural rate of unemployment decreased during the 1980s and 1990s.

43. Unemployment and Real GDP
As real GDP fluctuates around potential GDP, the unemployment rate fluctuates around the natural rate of unemployment.
In the deep recession of 1982, unemployment reached almost 10 percent.
In the milder recession of , the unemployment rate peaked at less than 8 percent.

44. The End