Unit 5: Full Employment
In the long run, the right answer to unemployment is to create
more jobs.
- George Walker Bush,
Unemployment is of vital importance, particularly to the
unemployed.
- Edward Heath
Business will be either better or worse.
When more and more people are thrown out of jobs,
unemployment tends to rise.
- Calvin Coolidge
Society's Goals for Macro System
Growth
 Stable Prices & Money


Full Employment

Stability of Business Cycle
Key Measures:
Unemployment Rate
Labor Force Participation Rate
Employment-Population Rate
Net New Jobs Create
New Unemployment Claims
Jobs-workers ratio
Unemployment in the U.S.
US Unemployment Data - BLS.gov
Analyzing employment
Population
Institutional Pop.
Children (<16)
Active Duty Military
Not In
Labor Force
Adult
NonInstitutional
Civilian
Pop. [A]
Retired
Don't want employment now
In School
Discouraged - quit looking for work
Employed [C]
Labor
Force [B]
(willing & able
to work)
Unemployed [D]
(Not Employed,
But Actively Looking)
Voluntary Quit
Involuntary Quit
Returning
New Entrant
Defining “Adult Civilian NonInstitutionalized Population”
 = labor force + not-in-labor-force
 = total population – institutionalized – active duty
military – children under age 16
Defining “Employed”:
person is working regardless of type
or num of hours/jobs.
Defining “Unemployed”:
no job, but willing, able, and actively
looking for work.
Defining Labor force:
 unemployed + employed
Defining “Not-in-labor force:
 retired, stay-at-home spouses,
idle rich, non-working
students, discouraged wouldbe workers (not looking)
Unemployment Rate:
= Unemployed / Labor Force

Excludes discouraged workers
Labor Force Participation Rate:
= Labor Force / Civ.N-I Adult Pop.
= (employed + unemployed) / CivNIA Pop
Employment Population Ratio
= employed / population
Why don’t the unemployed have a
job right now?
4 Types of Unemployment:
Frictional: open job exists for each
unemployed worker but they
haven’t matched up yet
Structural: open jobs exist but
require skills/locations that match
workers’
Seasonal: temporary situation
because job only exists during
certain months of year.
Cyclical: more unemployed
workers than available open jobs.
Policy Goal: ‘full employment’, but
that doesn’t mean 0% rate.
NATURAL RATE OF UNEMPLOYMENT:
economy at capacity with zero
frictional unemployment.
Full Employment is usually
defined as achieving the “natural
rate” or zero cyclical.