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21
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 sources of unemployment, define full
employment, and explain the link between
unemployment and real GDP.
© 2011 Pearson Education
21.1 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.
21.1 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 June 2009, the U.S. labor force was 154.9 million—
140.2 million people were employed and 14.7 million
people were unemployed.
21.1 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.
21.1 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.
21.1 LABOR MARKET INDICATORS
Figure 21.1
shows
population
labor force
categories.
The figure
shows the
data for June
2009.
21.1 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 June 2009, the unemployment rate was 9.5 percent.
21.1 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 June 2009, the labor force participation rate was
65.7 percent.
21.1 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.
21.1 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 June 2009, 860,000 people were discouraged
workers and 1,256,000 people were other marginally
attached workers.
Adding these workers to the number unemployed and
the labor force, the unemployment rate becomes 10.8
percent.
21.1 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)
21.1 LABOR MARKET INDICATORS
In June 2009, when employment was 140.2 million,
full-time employment was 112.9 million and
part-time employment was 27.3 million.
An estimated 10.7 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 16.5
percent.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
 Unemployment Rate
Figure 21.2
shows the U.S.
unemployment
rate: 1929–2009
The average
unemployment
rate was 5.7
percent.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The
unemployment
rate increases in
recessions
and decreases in
expansions.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Great
Depression
A period of high
unemployment,
low incomes, and
extreme
economic
hardship that
lasted from 1929
to 1939.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The Participation Rate
The participation rate increased from 59 percent in 1959
to 67 percent the 2009.
Between 1959 and 2009, the participation rate for
women increased from 37 percent to 60 percent.
Between 1959 and 2009, the participation rate for men
decreased from 84 percent to 72 percent.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Figure 21.3
shows the
changing
face of the
labor market.
The labor
force
participation
rate of women
has increased.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The labor force
participation rate
of men has
decreased.
The average
participation rate
of both sexes has
increased.
21.2 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.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-1 Unemployed
for 15 weeks
or more
U-2 People laid
off or had a
temporary
jobs
U-3 Total (official)
unemployment.
(as percentages
of labor force)
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-4 U-3 plus
discouraged
worker
U-5 U-4 plus
other
marginally
attached
workers
U-6 U-5 plus part
time for
economic
reasons
(as percentages of labor force plus
unemployed in the added category)
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Each measure of
the unemployment rate rises
during a
recession …
and falls
between
recessions.
21.2 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.
21.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Figure 21.5
shows part-time
workers from
1979 to 2009.
Workers who are
part-time for
noneconomic
reasons is
steady at about
13 percent of all
workers.
21.2 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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Figure 21.6 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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
For example, a graduate
looking for his first job.
21.3 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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Seasonal unemployment is the unemployment that
arises because of seasonal weather patterns.
For example, farm workers find jobs picking fruit as it
ripens, but once the fruit is picked they are laid off.
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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
21.3 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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
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.
21.3 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.
21.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Figure 21.7 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.
21.3 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.