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How long does it take
to find a job?
© 2013 Pearson
22
Jobs and Unemployment
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 types of unemployment, define full
employment, and explain the link between
unemployment and real GDP.
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22.1 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.
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22.1 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 2011, the U.S. labor force was 153.6 million—
139.6 million people were employed and 14.0 million
people were unemployed.
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22.1 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.
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22.1 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.
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22.1 LABOR MARKET INDICATORS
Figure 22.1
shows
population labor
force categories.
The figure shows
the data for
August 2011.
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22.1 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 2011, the unemployment rate was 9.1 percent.
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22.1 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 2011, the labor force participation rate was
64 percent.
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22.1 LABOR MARKET INDICATORS
Alternative Measures of Unemployment
The official definition of unemployment omits two types
of labor:
• Marginally attached workers
• Part-time workers
A marginally attached worker is a person who does
not have a job, is available and willing to work, has not
made specific efforts to find a job within the previous
four weeks, but has looked for work sometime in the
recent past.
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22.1 LABOR MARKET INDICATORS
Discouraged worker is a marginally attached worker
who has not made specific efforts to find a job within the
previous four weeks because previous unsuccessful
attempts were discouraging.
In August 2011, 988,000 people were discouraged
workers and 1,432,000 people were other marginally
attached workers.
Adding these workers to the number unemployed and
the labor force, the unemployment rate becomes 10.5
percent.
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22.1 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.
Part-time for economic reasons are people who
work 1 to 34 hours per week but are looking for full-time
work. (Also called involuntary part-time workers)
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22.1 LABOR MARKET INDICATORS
In August 2011, when employment was 139.6 million,
full-time employment was 112.6 million and
part-time employment was 27.0 million.
An estimated 8.8 million people worked part time for
economic reasons.
When this number along with marginally attached
workers is added to both the number unemployed and
the labor force, the unemployment rate becomes 16.2
percent.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
 Unemployment Rate
Figure 22.2
shows the U.S.
unemployment
rate: 1929–2011
From 1948 to
2011, the average
unemployment rate
was 5.8 percent.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The
unemployment
rate increases in
recessions
and decreases in
expansions.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Great
Depression
A period of high
unemployment,
low incomes, and
extreme
economic
hardship that
lasted from 1929
to 1939.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The Participation Rate
The participation rate increased from 59 percent in 1960
to 67 percent at its peak in the late 2009s.
Between 1960 and 2000, the participation rate for
women increased from 37 percent to 60 percent.
Between 1960 and 2000, the participation rate for men
decreased from 84 percent to 72 percent.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Figure 22.3
shows the
changing face of
the labor market.
The average labor
force participation
rate increased.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The labor force
participation rate
of women has
increased.
The labor force
participation rate
of men has
decreased.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Alternative Measures of Unemployment
The official measure of unemployment does not include
marginally attached workers and people who work part
time for economic reasons.
The Bureau of Labor Statistics (BLS) now provides three
broader measures of the unemployment rate, known as
U-4, U-5, and U-6, that include these wider groups of the
jobless.
The official unemployment rate is called U-3 and there
are two narrower measures U-1 and U-2.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-1 Unemployed for
15 weeks or
more
U-2 People laid off or
had a temporary
job
U-3 Total (official)
unemployment.
(as percentages of
labor force)
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-4 U-3 plus
discouraged
workers
U-5 U-4 plus
other
marginally
attached
workers
U-6 U-5 plus part
time for
economic
reasons
© 2013 Pearson
(as percentages of labor force plus
unemployed in the added category)
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Each measure of
the unemployment rate rises
during a
recession …
and falls
between
recessions.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
A Closer Look at Part-Time Employment
A part-time job is attractive to workers because they
• Balance family with work
Part-time jobs are attractive to employers because
• Benefits are not paid to part-time workers
• Less government regulation of part-time workers
People who choose part-time jobs are part time for
noneconomic reasons.
People who take part-time jobs because they can’t find
full-time jobs are part time for economic reasons.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Figure 22.5
shows part-time
workers from
1980 to 2010.
Workers who are
part-time for
noneconomic
reasons is
steady at about
13 percent of all
workers.
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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Workers who are
part time for
economic reasons
fluctuates with the
business cycle,…
rising in
recessions and
falling in
expansions.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
The key reason why there is always some unemployment
is because the labor market is constantly churning.
New jobs are created and old jobs die; and some people
move into the labor force and some move out of it. This
churning creates unemployment.
We distinguish among three types of unemployment:
• Frictional unemployment
• Structural unemployment
• Cyclical unemployment
© 2013 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
For example, a graduate
looking for his first job.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
For example,
telephone switching is
now done by computer,
rather than by
operators. Also, call
centers have been
relocated to India.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Cyclical unemployment is the
fluctuating unemployment over the
business cycle that increases
during a recession and decreases
during an expansion.
For example, during the recession
of 2008–2009, many workers were
laid off as business activity
declined.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
“Natural” Unemployment
“Natural” unemployment is the unemployment that
arises from frictions and structural change when there is
no cyclical unemployment—when all the unemployment
is frictional and structural.
Natural unemployment rate is the natural
unemployment as a percentage of the labor force.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Full employment occurs when the unemployment rate
equals the natural unemployment rate.
At full employment, all the unemployment is frictional or
structural—and not cyclical unemployment.
The major influences on natural unemployment are:
• Age distribution of the population
•The pace of structural change
•The real wage rate
•Unemployment benefits
© 2013 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
© 2013 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Potential GDP is the value of real GDP when the
economy is 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.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
When the economy is at full employment, real GDP
equals potential GDP and there is no output gap.
Output gap equals real GDP minus potential GDP,
expressed as a percentage of potential GDP.
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP and the
output gap is negative.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential
GDP and the output gap is positive.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Figure 22.6 shows this
relationship.
The unemployment rate
fluctuates around the natural
unemployment rate:
• Falling below the natural
rate when cyclical
unemployment is negative.
• Rising above natural rate
when cyclical
unemployment is positive.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
As the unemployment rate
fluctuates around the natural
unemployment rate in part (a),
the output gap fluctuates in part
(b).
• When the unemployment
rate is below the natural rate,
the output gap is positive.
• When the unemployment
rate exceeds the natural rate,
the output gap is negative.
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22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
During recessions, the
unemployment rate
exceeds the natural
unemployment rate in part
(a), and the output gap in
part (b) is negative.
© 2013 Pearson
How Long Does it Take to Find a Job?
Some people are unemployed for a week or two and others
for a year or more.
The average duration of unemployment varies over the
business cycle—increasing in a recession and decreasing
during an expansion.
In 2000, at a cycle peak when the unemployment rate was
below the natural rate at 4 percent, the median time to find a
job was 6 weeks.
In 2010, just after a cycle trough when the unemployment
rate was above the natural rate at 9.6 percent, the median
time to find a job was 22 weeks.
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How Long Does it Take to Find a Job?
The figure shows the percentage unemployed at four
unemployment durations.
It shows that long-term unemployment barely exits at a
business cycle peak but is large at a business cycle trough.
© 2013 Pearson