Mar. 2014
Unemployment data
Chapter28
Yes, in all economies there is a natural level of unemployment!
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Learning Targets
Be able to calculate…
•
Labor Force
•
Labor Force Participation Rate
•
Unemployment Rate
•
Why can the unemployment rate be misleading?
Understand these concepts
•
Cyclical Unemployment
•
Natural Unemployment
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Breakdown of US labor force in 2001. Some definitions…
Not all adults are considered part of the labor force.
How would you calculate the unemployment rate?
Labor Force =
# Employed +
# Unemployed
Many people are
NOT in the labor force, such as… people who…
•
Students
•
Stay-at-home
•
Stopped looking for work
Labor Force
Participation rate =
Labor Force /Adult
Population
= 141.8/211.9
= 67%
=% of adults interested in working
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How Is Unemployment Measured?
●
The unemployment rate is calculated as the percentage of the labor force that is unemployed.
Unemployment rate =
Number unemployed

100
Labor force
Adult Population = 200 million
Employed = 135 million
Unemployed = 7 million
Labor Force = ?
7 + 135 = 142 million
Unemployment rate = ?
7 million/ 142 million (100) = .05 = 5%
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A little practice- Worksheet answers a. Labor Force 2001 = 105.2 + 7.4 = 112.6 million
Labor Force 2002 = 104.2 + 8.1 = 112.3 million b. Labor Force Participation rate 2001 = 112.6/ 168.2 = 67%
LF Part. Rate 2002 = 112.3/169.5 = 66.2% c. Unemployment rate 2001 = 7.4/112.6 = 6.6 %
Unemployment rate 2002 = 8.1/ 112.3 = 7.2% d . What could cause the labor force participation rate to decrease?
People stopped looking for work (left the work force) e. 2001 cyclical unemployment = 0% = fully employed
2002 cyclical unemployment = (7.2% - 6.6%) = .6%, slight economic downturn!!
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How can the unemployment rate be misleading?
1. What could make the unemployment rate go down, either though no jobs were created?
2. What could make the unemployment rate go up, even though nobody lost any jobs?
Overall, the unemployment rate might not be a totally accurate indicator of economic health, if discouraged workers drop out of the labor force, or decide to re-enter the job market.
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Figure 3 Labor-Force Participation Rates for
Men and Women since 1950
Labor Force Participation Rate =
Labor Force
Adult Population
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Table 1 The Labor-Market Experiences of Various
Demographic Groups
Labor Force Participation Rate = Labor Force
Adult Population
2004 2014
5.5%
5.1
12.9
9.9
17.8%
39
2004 2014
73%
58
67
62
33%
24
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Let’s test your knowledge so far…
Employment Stats for Country A
Population
Adult Population
Number employed
Unemployed
100,000
70,000
45,000
5,000
Calculate the Labor Force
= # employed + # unemployed
= 45,000 + 5,000 = 50,000
Calculate the Labor Force Participation Rate
= Labor Force / Adult Population *100
= 50,000/70,000 *100 = 71%
Calculate the Unemployment Rate
= # Unemployed / Labor Force * 100
= 5,000/50,000 * 100 = 10%
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2 Types of Unemployment
1. Natural Unemployment
2. Cyclical Unemployment
= due to economic cycles
Cyclical unemployment
Natural
Unemployment
There is always some amount of unemployment!
The “Natural” Unemployment
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Unemployment due to economic fluctuations is called “ CYCLICAL ” Unemployment.
Cyclical unemployment
Any unemployment below the natural rate is considered “full employment”
Why is some unemployment natural?
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Learning Targets
Know the difference between the following
•
Natural Unemployment vs. Cyclical Unemployment
Why is there a “natural rate of unemployment”?
Frictional Unemployment
Structural Unemployment
What causes structural unemployment?
•
Workers who need to be retrained
•
Minimum Wage
•
Unions
•
Efficiency Wages
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Causes of a Natural Rate of Unemployment ?
Why there will always be some unemployment
■ Frictional Unemployment
♦ People switch jobs and it takes TIME to find another one.
♦
Unemployment compensation ADDS to friction !
■ People tend to find a job when their unemployment checks run out!!
●
Structural Unemployment
Longer-lasting unemployment, when …
LABOR SUPPLIED > LABOR DEMANDED
Some workers need to be retrained for a new employment environment!
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Causes of Structural Unemployment
#1. Demand for SKILLS changes
What might cause employers’ demand for workers to change?
Economy changes and workers need to change with it
Some workers need to get re-trained to continue in the job market.
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Causes of structural unemployment- cont’d
#2. Minimum Wage
How does having a minimum wage cause unemployment?
Minimum Wage can cause the wage to be above the equilibrium level
Wages ABOVE equilibrium rate
– creates a SURPLUS of laborers.
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Figure 4 Unemployment from a Wage above the
Equilibrium Level
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#3 Efficiency Wages
● Many employers would rather keep wages ABOVE equilibrium
● Why?
● Improve worker health (more relevant in developing countries)
● Limit worker turnover
●
Increase worker EFFORT and QUALITY
■ They make their jobs more attractive and only hire the BEST, but the rest don’t get to work!!!
● Henry Ford paid $5/ hour in 1910 (twice the going rate)
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More Causes of Structural Unemployment…
#4.
–
Yes, unions cause unemployment! How?
♦ Keep wages higher for union workers so employers hire less people for those jobs
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Right to Work States :
Some states do not allow unions to force workers to join a union in order to work at a particular job. 24 states are right to work states.
Right to Work States http://www.nrtw.org/en/print/1052
Screen clipping taken: 4/1/2014, 4:10 PM
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Journal Questions
How does natural unemployment differ from cyclical unemployment?
•
Natural unemployment is the level of unemployment that exists when the economy is running at full employment.
•
Cyclical unemployment is the level of unemployment caused by economic downturns.
What is Frictional Unemployment?
•
The temporary unemployment caused when people look for jobs.
What is Structural Unemployment?
•
Long term unemployment caused when the supply of labor is more than the demand.
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In your own words, what would you look at to judge whether our
Macro economy is strong or not.

Is our economy growing?
Are we making and selling stuff, which creates income?
What would you look at to evaluate this?
GDP
Real GDP or nominal GDP?
Are we creating jobs?
Are people working who want to work?
UNEMPLOYMENT RATE
LABOR FORCE PARTICIPATION RATE
# of jobs “NON-FARM PAYROLLS”
Are prices remaining stable or is there super high inflation?
CPI

Non-farm payrolls reports the number of jobs gained or lost in the non-farm economy in a single month.
Negative non-farm payrolls numbers report that jobs are being LOST.
Yes, we have been losing less jobs, BUT until recently no jobs had been created!

What does CPI indicate?
Price changes
A SLIGHT INCREASE IS OK.
IT SHOWS THE ECONOMY
IS GROWING.
Do we necessarily want prices to increase?
NOT REALLY
Do we want prices to decrease?
ABSOLUTELY NOT!
So what do we want?
WE WANT PRICES TO
REMAIN STABLE!

Why didn’t I buy
Apple Stock instead of Apple
Products
. ?
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