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AP Macro
Economics 2301
© Robin Foster
Total population of the USA.
Working Age population is the total number of people aged 16
and older who are not in jail, hospital, institutionalized or in the
military.
Civilian Labor Force number of persons employed and
unemployed.
Unemployed those without jobs, and looking for work.
Start with population of the USA.
-those under 16 years old
-full time military
-institutionalized and in prison
This leaves you with the “non institutionalized adult civilians”
-retired persons
-homemakers
-full time students over 16
-discouraged workers, not looking for work
This leaves you with the Civilian Labor Force.
This includes:
Employed or part time, employed and unpaid workers working in a family
business, those on sick leave, strike or on vacation, on the 12th of the
month.
• The percentage of people
in the labor force
who are unemployed.
I need a job
Unemployment rate=number unemployed x 100
labor force
• The BLS does a survey of 60,000 homes to determine who is
employed and not-employed.
• Part time workers are considered fully employed.
• Discouraged workers are not counted in labor force-leads to
under reporting of unemployment rate.
• The percentage of the working age population who are
members of the labor force.
Labor force x 100
working age population
Discouraged workers-do not have jobs, can work but are not really looking for
work within the past 4 weeks.
Full time-35 or more hours per week
Part time-under 35 hours per week
Involuntary part time-looking for a full time job, but are employed part time
• Work less than 35 hours
a week.
• Part time workers are
counted in labor statistics
• Some work part time
because they can’t work
full time, some work part
time while working for
full time work.
A person who does not
have a job, is available
and willing to work but
has not looked for a job
in 4 weeks.
•
•
•
•
0-3%-overextended economy like WWII
4-5%-probably at full-employment.
6-9%-recession
25%-depression
• Does not mean zero
unemployment.
• NRU occurs when job
seekers equal job
vacancies.
• Everyone who wants a
job has one.
The NRU has changed over
time.
In the 60’s it was 6%
today it is 4-5%
 Portion of young workers have
declined.
 Growing temp agencies and internet
workers.
 Work requirements tied to new
welfare laws.
 Doubling of prison population since
1985, removed high unemployment
individuals from the labor force.
• Job losers-persons fired or laid off.
• Job leavers-people who quit their jobs-either get better job or
leave labor force.
• Entrants-enter work force either after school, will be
unemployed until they get a job.
• Reentrants-someone who previously had a job, quit, left the
labor force and now wants a job again.
Good or okay unemployment:
1. Frictional-in between jobs due to new opportunity, new
lifestyle, education levels.
2. Seasonal-waiting for correct season to conduct trade and know
interruption is temporary and natural. Wages and hours are
planned accordingly.
Bad unemployment:
1. Cyclical-the business cycle has turned and business is bad.
Seek government help.
2. Structural-technology and times have changed, therefore what
we do no longer fits the market. Now what?
When the economy fails to
create enough jobs for
all who are able and
willing to work, potential
production of goods and
services is irretrievably
lost.
• Macroeconomist Arthur
Okun was the first to
quantify the relationship
between the
unemployment rate and
the GDP gap.
• Okun’s Law—
• For every 1% by which
the actual unemployment
rate exceeds the natural
rate, a GDP gap of
about 2% occurs.
Example:
In 1992 the actual unemployment rate
was 7.4%.
The natural unemployment rate was 6%.
7.4-6=1.4
1.4x2=2.8% of potential GDP (in real
dollars)
• If the GDP in 1992 was $6300 trillion.
• Based on Okun’s law 2.8% of potential
GDP was lost?
• How much was GDP was lost in 1992?
• 2.8% x $6300 trillion-$176 billion
• Potential GDP can occasionally be exceeded, but the excess of
actual over potential GDP typically causes inflation and cannot
be sustained indefinitely.