

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.

The labor-force participation rate is the
percentage of the population working or
seeking employment.
Total population (275,372,000)
Out of the labor force (133,086,000)
Under age 16
(62,541,000)
Homemakers
(20,343,000)
In school (9,130,000)
Retired (29,813,000)
Sick and disabled
(7,142,000) Institutionalized
(3,628,000) Other (489,000)
In civilian labor force (142,286,000)
Civilians employed(135,208,000)
Unemploye
d(5,655,000
)
Armed forces
(1,423,000)


As the labor force grows, the production
possibilities curve shifts outward.
This outward shift illustrates the increased
capacity to produce goods and services given
available technology and institutional
constraints.
Investment Goods (units per year)
C
A
H
F
O
Labor-force growth
increases
production
possibilities
G
B
D
Consumption Goods (units per year)


Unemployment is the inability of labor-force
participants to find jobs.
If a person is not employed and is actively
seeking work they are counted as
unemployed. People not engaging in or
actively seeking work are not part of the labor
force.

Okun’s Law asserts that 1% more
unemployment is estimated to equal 2
percent less output.


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.

The unemployment rate is the proportion of
the labor force that is unemployed.
number of unemployed people
Unemployment rate =
labor force

How long a person remains unemployed is
affected by the nature of the joblessness.
◦
◦
◦
◦
Job leavers
Job losers
Reentrants
New entrants
New
entrants
8%
Reentrants
34%
Job
leavers
14%
Job losers
44%


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.


Underemployment exists when people
seeking full-time paid employment work only
part time or are employed at jobs below their
capability.
Underemployed workers represent labor
resources that are not being fully utilized.

There are four major types of unemployment
◦
◦
◦
◦
Seasonal Unemployment
Frictional Unemployment
Structural Unemployment
Cyclical Unemployment


Seasonal unemployment is the unemployment
due to seasonal changes in employment or
labor supply.
Season unemployment can affect farm
workers, Christmastime retail workers, and
other jobs without year-round production.

Frictional unemployment is the brief periods
of unemployment experienced by people
moving between jobs or into the labor
market.

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.

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.


Structural unemployment is the worst for the
economy, as workers must learn new skills
and develop more training before they can
get new employment.
Periods of structural unemployment tend to
be longer than the other varieties.


Cyclical unemployment is the
unemployment attributable to the lack of
job vacancies – i.e., to an inadequate level of
aggregate demand.
Usually, the economy will return to a normal
level on its own, but in extreme examples
(e.g. The great depression), government
help is needed to alleviate cyclical
unemployment.
Rate of Unemployment
(Percent)
25
20
15
10
5
0
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Full employment is not the same as zero
unemployment.

The natural rate of unemployment is the
long-term rate of unemployment determined
by structural forces in labor and product
markets.

The Full Employment and Balanced Growth
Act of 1978 (Humphrey-Hawkins Act) states
our national goal is a 4% unemployment rate
with a required goal of 3% inflation.

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 1981-82 recession.
End of Chapter 6