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Jobs and
Unemployment
CHAPTER
23
CHAPTER CHECKLIST
When you have completed your study of this
chapter, you will be able to
1
Define the unemployment rate and other labor market
indicators.
2
Describe the trends and fluctuations in the indicators
of labor market performance in the United States.
3
Describe the sources and types of unemployment,
define full employment, and explain the link between
unemployment and real GDP.
23.1 LABOR MARKET INDICATORS
Current Population Survey
Every month, 1,600 interviewers working on a joint
project of the Bureau of Labor Statistics (BLS) and the
Bureau of the Census survey 60,000 households to
establish the age and job market status of each
member of the household.
Working-age population is the total number of
people aged 16 years and over who are not in a jail,
hospital, or some other form of institutional care or in
the U.S. Armed Forces.
23.1 LABOR MARKET INDICATORS
The working-age population is divided into those in the
labor force and those not in the labor force.
Labor force is the number of people employed plus
the number unemployed.
In August 2007, the U.S. labor force was 152.9 million—
145.8 million people were employed and 7.1 million
people were unemployed.
23.1 LABOR MARKET INDICATORS
Population Survey Criteria
The survey counts as employed all persons who,
during the week before the survey:
1. Worked at least 1 hour in a paid job or 15 hours
unpaid in family business.
2. Were not working but who had jobs from which they
were temporarily absent.
23.1 LABOR MARKET INDICATORS
The survey counts as unemployed all persons who,
during the week before the survey:
1. Had no employment
2. Were available for work,
and either:
1. Had made efforts to find employment during the
previous four weeks, or
2. Were waiting to be recalled to a job from which they
had been laid off.
23.1 LABOR MARKET INDICATORS
Figure 23.1
shows
population
labor force
categories.
The figure
shows the
data for
August 2007.
23.1 LABOR MARKET INDICATORS
Two Main Labor Market Indicators
• The unemployment rate
• The labor force participation rate
Unemployment rate is the percentage of people in
the labor force who are unemployed.
Unemployment rate =
Number of
people unemployed
x 100
Labor force
In August 2007, the unemployment rate was 4.6 percent.
23.1 LABOR MARKET INDICATORS
Labor force participation rate is the percentage of
the working-age population who are members of the
labor force.
Labor force
participation rate =
Labor force
Working-age population
x 100
In August 2007, the labor force participation rate was
65.8 percent.
23.1 LABOR MARKET INDICATORS
Discouraged Workers
Discouraged worker is a person who does not have
a job, is available and willing to work, but has not made
specific efforts to find a job within the previous four
weeks.
23.1 LABOR MARKET INDICATORS
Part-Time Workers
Full-time workers are people who usually work 35
hours or more a week.
Part-time workers are people who usually work less
than 35 hours a week.
Involuntary part-time workers are people who work
1 to 34 hours per week but are looking for full-time
work.
23.1 LABOR MARKET INDICATORS
Aggregate Hours
The total number of hours worked by all the people
employed, both full time and part time, during a year.
In August 2007, 145.8 million people worked an
average of 33.8 hours per week.
With 50 workweeks per year, aggregate hours were
145.8 million  33.8  50 = 246.4 billion.
23.2 LABOR TRENDS AND FLUCTUATIONS
Unemployment
Figure 23.2
shows the U.S.
unemployment
rate: 1967–2007
The average
unemployment
rate between
1967 and 2007
was 5.9 percent.
23.2 LABOR TRENDS AND FLUCTUATIONS
The
unemployment
rate increases in
recessions and
decreases in
expansions.
23.2 LABOR TRENDS AND FLUCTUATIONS
The Participation Rate
The participation rate increased from 60 percent during
the 1960s to 67 percent the 2000.
Since 2000, the participation rate has fallen slightly.
Between 1967 and 1997, the participation rate for
women increased from 40 percent to 60 percent.
Between 1967 and 2007, the participation rate for men
decreased from 80 percent to 73 percent.
23.2 LABOR TRENDS AND FLUCTUATIONS
Figure 23.3
shows the
changing
face of the
labor market.
The labor
force
participation
rate of women
has increased.
23.2 LABOR TRENDS AND FLUCTUATIONS
The labor force
participation rate
of men has
decreased.
The average
participation rate
of both sexes has
increased.
23.2 LABOR TRENDS AND FLUCTUATIONS
Part-Time Workers
Part-time work is attractive to workers because they
• Balance family with work
Part-time work is attractive to employers because
• Benefits are not paid to part-time workers
• Less government regulation of part-time workers
23.2 LABOR TRENDS AND FLUCTUATIONS
Figure 23.4
shows part-time
workers from
1977 to 2007.
Part-time workers
are 16 to 17
percent of all
workers and
barely changes
over the business
cycle.
23.2 LABOR TRENDS AND FLUCTUATIONS
The figure also
shows
involuntary parttime workers.
Involuntary
part-time work
increases in
recessions and
decreases in
expansions.
23.2 LABOR TRENDS AND FLUCTUATIONS
Aggregate and Average Hours
Between 1967 and 2007, the number of people
employed almost doubled (up 96 percent) but
aggregate hours increased by only 75 percent.
The reason: average hours per worker decreased.
23.2 LABOR TRENDS AND FLUCTUATIONS
Figure 23.5(a)
shows aggregate
hours: 1967–2007.
Between 1967 and
2007, aggregate
hours increased by
75 percent a year.
Fluctuations in
aggregate hours
coincide with the
business cycle.
23.2 LABOR TRENDS AND FLUCTUATIONS
Figure 23.5(b) shows
average weekly hours
from 1965 to 2005.
Average weekly hours
decreased ...
And fluctuate with the
business cycle.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Sources of Unemployment
People who become unemployed are
• Job losers—people who are laid off from their jobs
• Job leavers—people who voluntarily quit their jobs
• Entrants and reentrants—people who have just left
school or who are now looking for a job after a
period out of the labor force.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Figure 23.6 shows
unemployment by
reasons.
Job leavers are the
smallest group,
and their number
fluctuates little.
Job losers are the
biggest group,
and their number
fluctuates most.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
People who end a period of unemployed are
• Hires—people who have been unemployed and
have started new jobs
• Recalls—people who have been temporarily laid
off and has started work again
• Withdrawals—people who have been unemployed
and have decided to stop looking for jobs.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Types of Unemployment
Frictional unemployment is the unemployment that
arises from normal labor turnover—from people
entering and leaving the labor force and from the
ongoing creation and destruction of jobs.
Structural unemployment is the unemployment that
arises when changes in technology or international
competition change the skills needed to perform jobs or
change the locations of jobs.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Seasonal unemployment is the unemployment that
arises because of seasonal weather patterns.
Cyclical unemployment is the fluctuating
unemployment over the business cycle that increases
during a recession and decreases during an expansion.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Duration and Demographics of Unemployment
On the average
from 1997 to
2007, blacks
experienced
more than
twice the
unemployment
rate of whites.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Teenagers
experienced more
than three times
the unemployment
of workers aged
20 and over.
Women have lower
unemployment
rates than men.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Full Employment
Full employment occurs when there is no cyclical
unemployment or, equivalently, when all the
unemployment is frictional, structural, or seasonal.
Natural unemployment rate is the unemployment
rate when the economy is at full employment.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Unemployment and Real GDP
Cyclical unemployment is the fluctuating unemployment
over the business cycle—unemployment increases
during recessions and decreases during expansions.
At full employment, there is no cyclical unemployment.
At the business cycle trough, cyclical unemployment is
positive.
At the business cycle peak, cyclical unemployment is
negative.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Figure 23.8(a)shows the
U.S. unemployment rate
from 1977 to 2007.
As the unemployment rate
fluctuates around the
natural rate unemployment,
…
Cyclical unemployment is
negative (shaded red) and
positive (shaded blue).
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Potential GDP is the level of real GDP that the
economy would produce if it were at full employment.
Because the unemployment rate fluctuates around the
natural unemployment rate, real GDP fluctuates around
potential GDP:
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential
GDP.
23.3 SOURCES AND TYPES OF UNEMPLOYMENT
Figure 23.8 shows the
relationship between
unemployment and real
GDP.
As the unemployment rate
fluctuates around the
natural rate unemployment
in part (a), real GDP
fluctuates around potential
GDP in part (b).