Employment Statistics
 Employed
 You have a job (even if part time)
 Unemployed
 “Jobless, looking for jobs, and available to work”
 Must be ACTIVELY searching during the past 4 weeks
 Labor Force
 Sum of the employed and unemployed
 Institutionalized (students, military, inmates) are
excluded
Natural Rate of Unemployment
 Expansion…unemployment↓
 Recession…unemployment ↑ (but not always!)
 There is still a level of unemployment even when jobs
are plentiful
 Even in the best of times, jobs are constantly being
created and destroyed
 The job market is constantly fluctuating
 Also called FULL EMPLOYMENT
Problems with the Unemployment Rate
 The figure itself is an estimate based on random sampling of
60,000 households scaled up
 Tends to understate the true level (though it can overstate it as
well!)
 Discouraged workers
 Marginally attached workers
 Underemployed workers
 These are not accounted for in the standard unemployment
statistics
Three Types of Unemployment
 There are three different types of unemployment that
describe how jobs are constantly being created and
destroyed
 Frictional
 Structural
 Cyclical
Frictional Unemployment
 Unemployment due to the time workers spend in the
job search
 “in between jobs” or seeking first job
 Typically by choice
 Somewhat desirable-indicates mobility
Structural Unemployment
 Losing a job to changing structure of the economy
 The skill-set is no longer in demand by the nation’s
producers
 Somewhat desirable-indicates productivity and
efficiency
Cyclical Unemployment
 Results from a fall in total demand for a nation’s
output
 Associated with the recession phase in a business
cycle
Determining Unemployment
Employed + Unemployed = Labor force
Labor force participation rate:
Labor force
X 100
Population 16-64
Unemployment rate:
Number of unemployed X 100
Labor force
Changes in Natural Rate of
Unemployment
 Natural rate of unemployment: “normal rate”
NRU = Frictional + Structural
Actual Unemployment Rate = Natural + Cyclical
 Natural rate changes over time as a result of:
 Changes in Labor Force
 Changes in Labor Market
 Changes in Government Policy
Okun’s Law
 Recessions are linked to rising unemployment; expansions see
falling unemployment (in the long run)
 The economic cost of unemployment is measured as the GDP
gap—the amount of sacrificed output
 Okun’s Law – About a 2% decrease in output (GDP) for every 1%
increase in unemployment
 Okun’s Law is based on observation, not theory, so it is
approximated and has been adjusted a little over time