Download The Unemployed

Chapter 6
Unemployment
Unemployment
• Unemployment in the U.S. follows a countercyclical pattern, rising when the economy's
GDP is declining, and falling when the
economy recovers.
– It is a lagging indicator, rising only after the
recession has begun, and it peaks well after the
recession is officially over.
U.S. Unemployment through Time
U.S. Unemployment Rates
12
10
8
6
4
2
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20
03
20
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19
97
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0
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http://www.bls.gov/fls/flsjec.pdf international comparison
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Measuring Unemployment
•
•
Each month the Bureau of Labor Statistics
polls over 50,000 households either in person
or by phone.
The respondents of the survey are classified
into one of three categories:
–
–
–
•
Unemployed
Employed
Not in the labor force
The labor force = employed + unemployed
Measuring Unemployment
• The unemployment rate is the percentage of the
labor force that is unemployed, or
The Employed
• To be counted as employed, a person must have
– worked at a job for pay or profit during the survey
week (the week that contains the 12th of the
month).
– worked without pay for more than 15 hours for a
family business.
The Unemployed
• Persons are classified as unemployed if they
– do not have a job.
– have actively looked for work in the prior four
weeks.
– are currently available for work.
Not in the Labor Force
• A person is classified as not in the labor force if
he/she
– has no job.
– has not actively looked for work in the prior four weeks.
– is currently unavailable for work except for a temporary
illness.
Example: Calculating
Unemployment Rates
1. Number “officially”
unemployed is 50 – 22 =
28.
2. Number in labor force =
employed + unemployed =
420 + 28 = 448
3. Unemployment rate =
28/448 x 100 = 6.25%.
TABLE 1
Labor Force Data
Population
800
Full-time Students
150
Retired
180
Employed
420
Those wanting work*
50
*Note: Of those classified as “wanting
work", 22 have not actively sought work
in the prior four weeks.
Criticisms of the Unemployment Rate
1. The survey does not count discouraged
workers as unemployed.
–
–
A discouraged worker is one who has given up
looking for work because they could not find a
job or thought that they could not find a job.
This omission understates “true” unemployment
rate because discouraged workers are classified as
not in the labor force.
Criticisms of the Unemployment Rate
2. The survey does not account for hidden
unemployment.
–
–
Hidden unemployment includes those who are
working part-time but wish to have a full-time job
and those who are grossly overqualified for their
positions, the underemployed.
This omission also understates the “true”
unemployment rate.
Criticisms of the Unemployment Rate
3. The surveyor does not check the accuracy of
the response to an active job search.
–
–
To be unemployed, a survey respondent must
only "say" that he/she has actively sought work.
This problem potentially overstates the “true”
unemployment rate.
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Types of Unemployment
• Frictional unemployment is unemployment that
is due to the natural movements in and out of
labor force.
– in a dynamic economy this frictional
unemployment is healthy.
– tends to be short-term and voluntary.
• State data
• http://econ124.wustl.edu/sp08/unemployment.h
tml
Types of Unemployment
• Structural unemployment is unemployment that
is typically due to changes in technology or
international competitiveness. in a dynamic
economy this frictional unemployment is
healthy.
– result of some fundamental shift in the economy
– example: U.S. steelworkers laid off when the steel
production moved to Asia.
– tends to be long term and involuntary.
Types of Unemployment
• Cyclical unemployment is unemployment that
is due to a downturn in the business cycle.
– Changes in these unemployment rates are countercyclical.
– A primary goal of stabilization policy is to achieve
zero cyclical unemployment.
The Natural Rate of Unemployment
• Frictional and structural unemployment are
unavoidable in a dynamic economy. These two
combined are called the natural rate of
unemployment, or the full-employment rate of
unemployment.
– There is nothing that macroeconomic policy can do to
reduce or eliminate frictional and structural unemployment.
– Many economists estimate the U.S. natural rate of
unemployment to be between 5 percent and 5.5 percent.
Costs of Unemployment
• The economics cost of unemployment is the
lost output and, hence, lost consumption due to
idle labor resource.
• Potential output is the level of GDP the
economy would attain if all resources were
fully employed.
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