Download ECN 111 Chapter 6 Lecture Notes

ECN 111 Chapter 6 Lecture Notes
6.1 Labor Market Indicators
A. Current Population Survey
1. The Bureau of Labor Statistics and the Bureau of the Census survey 50,000 households to
determine the labor market status of its members.
2. The U.S. population is divided into two groups: the working-age population and others who are
too young to work or who live in institutions and are unable to work.
a. The working-age population is the total number of people aged 16 years and over who
are not in jail, hospital, or some other form of institutional care. In June 2002, the workingage population was 213.8 million.
3. The working-age population is divided into two groups: those in the labor force and those not in
the labor force.
a. The labor force is the number of people employed plus the number unemployed. In June
2002, U.S. labor force was 143.7 million.
B. Population Survey Criteria
1. A person is counted as employed if during the week before the survey that person
a. Worked at least 1 hour as paid employee, or worked 15 hours or more as unpaid workers in
his or her family business.
b. Was not working but had a job or business from which he or she was temporarily absent.
2. A person is counted as unemployed if during the week before the survey the person
a. Had no employment
b. Was available for work
c. And either had made specific efforts to find employment during the previous four weeks or
was waiting to be recalled to a job in which he or she had been laid off.
d. In June 2002, the number of unemployed workers was 8.7 million.
3. People not in the labor force are those in the working-age population who are neither
employed nor unemployed.
C. Two Main Labor Market Indicators
1. The unemployment rate is the percentage of the people in the labor force who are
unemployed.
(Number of people unemployed )
 100 .
a. The unemployme nt rate 
(Labor force)
b. In June 2002, the unemployment rate was 6.1 percent.
2. The labor force participation rate is the percentage of working-age population who are
members of the labor force.
(Labor force)
 100 .
a. The labor force participation rate 
(Working - age population )
b. In June 2002, the labor force participation rate was 67.2 percent.
D. Discouraged Workers
A discouraged worker is a person who is available and willing to work but has not made specific
efforts to find a job within the previous four weeks. It is estimated that if these workers were
added to the measured number of unemployed, the June 2002 unemployment rate would rise
from 6.0 percent to 9.2 percent.
E. 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. They fall into two
categories:
1. Involuntary part-time workers are people who work 1 to 34 hours per week but who are
looking for full-time work. They cannot find work because of unfavorable business conditions or
because of seasonal decreases in the availability of full-time work.
2. Part-time workers for noneconomic reasons do not want to work full time and are not available
for such work because of health problems, family or personal responsibilities, or education
commitments.
F. Aggregate Hours
Aggregate hours are the total number of hours worked by all the people employed, both full time
and part time, during a year.
1. Aggregate hours equal the number of people employed multiplied by the average work hours
per person.
2. In June 2002, 135 million people worked an average of 34.7 hours per week. With 50
workweeks per year, aggregate hours were 234.2 billion.
6.2 Labor Market Trends and Fluctuations
A. Unemployment
1. Between1962 to 2002, the average U.S. unemployment rate was 5.9 percent.
a. In 2001 and 2002, the unemployment rate increased as the U.S. economy went into a
recession.
b. The 1960s expansion was the result of demands on the economy from growth in defense
production during the Vietnam War and expansion of social spending programs.
c. The 1970s and 1980s were years of above average unemployment.
d. The unemployment rate peaked at almost 10 percent during the 1982 recession.
B. The Participation Rate
1. The participation rate increased from 59 percent during the 1960s to 67 percent during the
1990s.
2. Cyclical fluctuations in the participation rate are mild and result from unsuccessful job seekers
becoming discouraged workers.
3. The main reason for the increase in participation rate is the increase in the number of women
who have entered the labor force. Between 1962 and 2002, the participation rate of women
increased from 38 percent to 60 percent. There are four main reasons:
a. More women pursued a college education and so increased their earning power.
b. Technological change in the work place created a large number of white-collar jobs with
flexible hours that women found attractive.
c. Technological change in the home increased the time available for paid employment.
d. Families wanted a second income to balance tight budgets.
4. The male labor force participation rate decreased from 82 percent in 1962 to 74 percent in
2002. There are three reasons:
a. Some men retired early because of an increase in wealth.
b. Some part of the decrease arose from job loss at an age at which finding a new job was
difficult
c. More men remained in full-time education.
C. Part-time Workers
1. The percentage of workers who are part time has increased, but not by much. In 1972, 16
percent of workers were part time. That number grew to 17 percent in 2002.
2. The part-time percentage fluctuates with the business cycle. In the 1982 recession, it reached
19.2 percent and in the 1990-1991 recession, it reached 18.1 percent. During the expansion
years after 1994, the part-time percentage declined.
3. The involuntary part-time rate has averaged 27 percent. In the recession of 1982 the rate
climbed to approach 33 percent. During the 1990s expansion, the involuntary part-time rate
fell.
D. Aggregate and Average Hours
1. Aggregate hours increased by 77 percent between 1962 to 2002 even though the number of
people employed over that time has increased by 100 percent.
2. Average hours per worker decreased from 39 hours a week during the early 1960s to 34 hours
a week during the 1990s. This decrease occurred for two reasons:
a. Average hours worked by full-time workers decreased.
b. The number of part-time jobs increased faster than the number of full-time jobs.
6.3 The Sources and Types of Unemployment
A. Sources of Unemployment
1. Job losers are people who are fired or laid off from their jobs, either permanently or
temporarily. People lose their jobs for a variety of reasons: some are not a good match for the
job, firm failure, or technological change.
2. Job leavers are people who voluntarily quit their jobs either for a better job or to leave the labor
force.
3. Entrants are people who have just left school and are entering the job market, while reentrants
are people who have previously had jobs, left the labor force, and are now again looking for
jobs.
B. How Unemployment Ends
1. Hires and recalls — people who have been unemployed but have been hired to start a new job
are “hires” and people who have been temporarily laid off and who start work again are
“recalls.”
2. Withdrawals — people who have been unemployed and who decide to stop looking for jobs.
Most are discouraged workers.
C. Types of Unemployment
1. Frictional 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.
2. Structural Unemployment
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.
3. Seasonal Unemployment
Seasonal unemployment is the unemployment that arises because of seasonal weather
patterns.
4. Cyclical Unemployment
Cyclical unemployment is the fluctuating unemployment over the business cycle that
increases during a recession and decrease during an expansion.
D. Duration and Demographics of Unemployment
1. In 1983 when the economy was recovering from a recession, almost a quarter of the
unemployed took more than 26 weeks to find a job.
2. In the economic expansion of 2000, almost all of the unemployed found a new job in less than
14 weeks.
3. Unemployment across demographic groups varies.
a. The unemployment rate is highest among black teenagers.
b. The unemployment rate is lowest among whites aged 20 years and over.
E. Full Employment
Full employment occurs when there is no cyclical unemployment or, equivalently, when all
unemployment is frictional, structural, and seasonal.
1. The natural unemployment rate is the unemployment rate at full employment.
F. Unemployment and Real GDP
Potential GDP is the level of real GDP that the economy would produce if it were at full
employment. Cyclical unemployment fluctuates over the business cycle:
1. When the unemployment rate is above the natural unemployment rate, real GDP is below
potential GDP.
2. When the unemployment rate is below the natural unemployment rate, real GDP is above
potential GDP.
3. When the unemployment rate is equal to the natural unemployment rate, real GDP equals
potential GDP