Download Date of Announcement Date of the next Announcement

A Case Study
The December Unemployment Rate
Date of Announcement
January 6, 2006
Unemployment
rate fell slightly to
4.9 percent.
Date of the next Announcement
February 3, 2006
Employment
increases.
An increase of
108,000 jobs.
[SLOPES OF ARROWS ARE IMPORTANT – THE ALMOST FLAT, BUT
DOWNWARD, SLOPE OF THE UNEMPLOYMENT RATE INDICATES
LITTLE CHANGE IN THE UNEMPLOYMENT RATE. THE UPWARD
SLOPING EMPLOYMENT ARROW INDICATES ARE A RISE IN
EMPLOYMENT.]
Announcement
The unemployment rate for the month of December was 4.9 percent, a slight
fall from the 5.0 percent in November. Total employment rose by 108,000 in
December.
The original press release is available at:
http://www.bls.gov/news.release/empsit.nro.htm.
Teachers' Notes
Material in italics in this case does not appear in the student version.
Each case describes the most current data and trends and expands
expectations of student understanding. In this case, the definitions of
frictional, structural, and cyclical unemployment are introduced.
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Goals of the Unemployment Case Study
The purpose of this case study is to report the unemployment and employment
data, to provide interpretations of the significance of the changes in conditions,
and to discuss a number of related economic concepts. The case ends with
exercises for students and activities that teachers can use in classrooms.
The case offers an opportunity to enhance our understanding of the relevance
of the announcements and the causes and consequences of one of the more
important challenges economic policymakers face.
Definition of the Unemployment Rate
The unemployment rate is the percentage of the U.S. labor force that is
unemployed. It is calculated by dividing the number of unemployed
individuals by the sum of the number of people unemployed and the
number of people employed. The number of people unemployed and the
number of people employed is defined as the number of individuals in the
labor force. See the current calculation in Table 1.
An individual is counted as unemployed if the individual is over the
age of 16 and is actively looking for a job, but cannot find one. Students,
those individuals who choose to not work, and retirees are not in the labor
force, and therefore not counted in the unemployment rate.
Table 1
Note to teachers. The number of individuals employed actually differs here from
the number of employed discussed later in the case. This is because the
unemployment statistics and the number of employed used to calculate the
unemployment rate come from different surveys than those used to track changes
in the number of employed.
Data Trends
The trend over the 1990s to the 2001 recession was a decrease in
unemployment and an increase in employment. In 1999 and 2000, annual growth
in employment was 2.8 million people, with approximately 155,000 more people
employed each month. Over 15 million people were added to the jobs over the
decade.
Figure 1 shows the rises in unemployment associated with the recession in
1990 to 1991 and the recession of 2001 with an almost decade long fall in
unemployment in between. Unemployment rates continued to increase after the
2001 recession, as the economy only slowly recovered. The unemployment rates
have since began to fall.
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Figure 1
At its low in December 2000, the unemployment rate equaled 3.9 percent.
From March 2001 to the summer 2003, the trend was generally one of increasing
unemployment rates and decreasing employment.
However, unemployment rates have been decreasing since reaching a high of
6.3 percent in June of 2003.
Figure 2
[Insert the following interactive exercises here]
1. What is the approximate current rate of unemployment?
2%
3%
4%
5%
6%
2. Is this high or low relative to unemployment rates in the last few months?
High
About the same
Low
Answers to interactive questions.
1. Approximately 5 percent (actually 4.9 percent).
2. Compared to the last few months, current unemployment has remained about the
same. The unemployment rate has ranged from 5.1 percent to 4.9 percent since
March of 2005.
Relevance of Unemployment Announcements
The monthly unemployment announcements receive headline treatment
almost every month. Changes are significant indicators of national economic
conditions and have relevance to every local community as unemployment has
significant costs to the individuals who are unemployed and to the entire
community and the U.S. economy. Those costs are explored in the next case
study.
Changes in levels of employment are also included in the announcements and
often receive less attention. However, the employment data are equally, perhaps
even more, important indicators of the direction of the U.S. economy.
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Announcements of increases in employment have received particular attention
over the last year. Prior to the last year, the economy had not generated sufficient
numbers of new jobs to provide new labor market entrants with jobs.
Interactive questions.
In questions 1 through 5, state what is happening to a hypothetical unemployment rate.
Assume that the current employment equals 95 million. Assume that current
unemployment equals 5 million.
1. What is the current unemployment rate in the economy described in the question?
Less than 5 percent
5 percent
More than 5 percent
2. What will happen to the unemployment rate if the population grows?
Increase
Decrease
Not change
3. What if, over a year or two, 5 million of the currently employed lose jobs and begin
looking for work? The unemployment rate would:
Increase
Decrease
Not change
4. What if, over a year or two and the events in 3, 10 million enter the labor force and 5
million find jobs and 5 million continue to look? The unemployment rate would:
Increase
Decrease
Not change
Answers.
1. The unemployment rate is 5 percent. It is calculated by dividing the number of
unemployed by the size of the labor force. 5 million / (5 million + 95 million).
2. Nothing will happen unless some of those new individuals enter the labor force.
3. Unemployment will rise. The unemployment rate will rise. The labor force will not
change and the number of unemployed increases. The unemployment rate will be 10
percent. 10 million / (10 million + 90 million) = 10 percent.
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4. Unemployment will rise. The labor force will increase and the number of unemployed
increases. Because 50 percent of the new entrants are unemployed, the
unemployment rate will increase. The unemployment rate will be 13.6 percent. 15
million / (15 million + 95 million) = 13.6 percent.
Employment
A second important part of each month’s unemployment announcement is the
report of the number of individuals employed. Unemployment and
unemployment rates receive much of the press attention and rightfully so. But
employment and a loss or gain in jobs are also important indicators of progress in
the economy. The failure of the economy to produce as many jobs as we have
experienced in the past has been of particular interest and concern.
The failures of employment to increase at the same rate as population growth
ultimately means higher unemployment or individuals leaving the labor force.
Employment is increasing once again and has been on an upward trend at
rates that will provide sufficient jobs for new entrants since the beginning of
2004.
Total nonfarm payroll employment (seasonally adjusted) rose by 108,000 in
December to almost 143 million. The levels of employment have been growing at
levels large enough to provide new entrants jobs for most of 2004 and 2005.
The largest increases in jobs in October were in manufacturing and
construction.
Figure 3
Figure 3 shows that growth in employment slowed in the last part of 2000 and
stopped in March of 2001. Employment decreased in all but six of the months
from the beginning of the recession in March of 2001 to September of 2003.
Finally in September of 2003, employment began to grow. (See the most recent
GDP case study.)
Figure 4 shows the monthly change in employment. Since the beginning of
2004, the overall growth rates have been rapid enough to provide jobs for new
entrants into the labor force.
Figure 4
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Case Study Discussion Questions
1. What are the key parts of the unemployment announcement?
2. What are the relevant economic concepts?
3. What does this mean for workers?
Sample Answers to Case Study Questions
1. The unemployment rate decreased slightly to 4.9%. Employment increased once
again this month by an amount large enough to continue to maintain low
unemployment rates.
2. The rate of unemployment, the amount of employment, and the change in labor
force.
3. Employment is rising rapidly enough to provide jobs for new workers entering the
work force. Unemployment may decrease or individuals may enter the labor
force if the changes indicate a trend.
Classroom Discussion Activity
Go to the BLS website and check the Local Area Unemployment Statistics for
your city and state (www.bls.gov/news.release/metro.t01.htm).
1. Is unemployment in your area higher, lower, or roughly the same as the
national average?
2. What factors contribute to your area’s unemployment rate?
Which industries have expanded?
Which industries have contracted?
A good idea is to ask students to talk to your local or state employment office and
report on local and state trends. The local or state employment office should be
about to explain why your local statistics differ from the national data.
3. Will the recent changes affect students hunting for part-time jobs?
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Relevant National Economic Standards
The relevant national economic standards are numbers 18, 19, and 20.
18. A nation's overall levels of income, employment, and prices are determined
by the interaction of spending and production decisions made by all
households, firms, government agencies, and others in the economy.
Students will be able to use this knowledge to interpret media reports about
current economic conditions and explain how these conditions can influence
decisions made by consumers, producers, and government policy makers.
19. Unemployment imposes costs on individuals and nations. Unexpected
inflation imposes costs on many people and benefits some others because it
arbitrarily redistributes purchasing power. Inflation can reduce the rate of
growth of national living standards because individuals and organizations
use resources to protect themselves against the uncertainty of future prices.
Students will be able to use this knowledge to make informed decisions by
anticipating the consequences of inflation and unemployment.
20. Federal government budgetary policy and the Federal Reserve System's
monetary policy influence the overall levels of employment, output, and
prices. Students will be able to use this knowledge to anticipate the impact
of federal government and Federal Reserve System macroeconomic policy
decisions on themselves and others.
Sources of Additional Activities
Advanced Placement Economics: Macroeconomics. (National Council on
Economic Education)
Activity 13. Types of unemployment. (Also see activities 21 and 22. Full
Employment in a Capitalist Economy.)
Advanced Placement Economics: Microeconomics (National Council on
Economic Education)
Unit Two. The Nature and Function of Markets
Economics USA: A Resource Guide for Teachers
Lesson 12. Monetary Policy: How Well Does It Work?
Lesson 13. Stabilization Policy: Are We Still in Control?
Focus on Economics: High School Economics (National Council on Economic
Education)
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Lesson 2. Broad Social Goals of an Economy
Lesson 18. Economics Ups and Downs
Focus on Economics: Civics and Government (National Council on Economic
Education)
Lesson 11. What can a Government Do About Unemployment?
Handbook of Economic Lessons (California Council on Economic Education)
Lesson 5. Unemployment in the United States: How is it Measured?
High School Economics Courses: Teaching Strategies
Lesson 2. Different Means of Organizing an Economy
Lesson 15. Economic Goals
All are available in Virtual Economics, An Interactive Center for Economic Education
(National Council on Economic Education) or directly through the National Council
on Economic Education.
Author:
Stephen Buckles
Vanderbilt University
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