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Ch:22 Employment and Wages Population Survey • Every month, the U.S. Census Bureau surveys 60,000 households and asks a series of questions about the age and job market status of its members. • Called the Current Population Survey Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-1 Employment and Wages Population Survey (cont.) • The working age population is the total number of people aged 16 years an over who are not in a jail, hospital, or some other form of institutional care. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-2 Employment and Wages Population Survey (cont.) • The working age population is divided into those in the labor force and those not in the labor force. • The labor force is divided into the employed and the unemployed. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-3 Employment and Wages To be counted as unemployed, a person must be available for work and must be in one of three categories: 1) Without work but has made specific efforts to find a job within the previous four weeks Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-4 Employment and Wages To be counted as unemployed, a person must be available for work and must be in one of three categories: 2) Waiting to be called back to a job from which he or she has been laid off Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-5 Employment and Wages To be counted as unemployed, a person must be available for work and must be in one of three categories: 3) Waiting to start a new job within 30 days Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-6 Population Labor Force Categories Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-7 Employment and Wages Three Labor Market Indicators • The unemployment rate • The labor force participation rate • The employment-to-population ratio Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-8 Employment and Wages The unemployment rate is the percentage of the people in the labor force who are unemployed. Number of people unemployed Unemployment rate = 100 Labor force Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-9 Employment and Wages Labor force = Number of people employed + Number of people unemployed Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-10 Employment and Wages The labor force participation rate is the percentage of the working-age population who are members of the labor force. Labor force Labor force = Working age population 100 participation rate Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-11 Employment and Wages Discouraged Workers People who are available and willing to work but have made not made specific efforts to find a job within the previous four weeks. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-12 Employment and Wages The employment-to-population ratio is the percentage of people of working age who have jobs. Employment-to- = population ratio Copyright © 2000 Addison Wesley Longman, Inc. Number of people employed Working-age population 100 Slide 7-13 Employment, Unemployment, and the Labor Force: 1960–1996 Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-14 Learning Objectives • Define the unemployment rate, the labor force participation rate, the employment-topopulation ratio, and aggregate hours • Describe the trends and fluctuations in the indicators of labor market performance Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-15 The Changing Face of the Labor Market Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-16 Employment and Wages Aggregate Hours • The indicators previously studied are useful signs of the health of the economy. • However, they do not measure the productivity of labor. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-17 Employment and Wages Aggregate hours are the total number of hours worked by all the people employed, both full time and part time, during a year. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-18 Aggregate Hours: 1960–1998 Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-19 Aggregate Hours: 1960–1998 Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-20 Employment and Wages Wage Rates • The real wage rate is the quantity of goods and services that an hour's work can buy. • Equals the money wage rate divided by the price level Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-21 Real Wage Rates: 1960 – 1998 Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-22 Learning Objectives (cont.) • Describe the sources of unemployment, its duration, and the groups that are most affected by it • Explain how employment and wage rates are determined by demand and supply in the labor market Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-23 Unemployment and Full Employment People become unemployed if they: 1) Lose their jobs and search for another job. 2) Leave their jobs and search for another job. 3) Enter or reenter the labor force to search for a job. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-24 Unemployment and Full Employment Job losers are people who are laid off, either permanently or temporarily. • Biggest source of unemployment. • Numbers fluctuate considerably. Job leavers are people who voluntarily quit their jobs. • Smallest and most stable source of unemployment. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-25 Unemployment and Full Employment Entrants are people who are entering the labor force. Reentrants are people who have previously withdrawn from the labor force. • Reentrants/entrants are a large component of the unemployed. • Numbers fluctuate mildly. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-26 Labor Market Flows Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-27 Unemployment by Reasons Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-28 Unemployment by Duration Less than 5 weeks 5-14 weeks Business cycle peak 15-26 weeks Business cycle trough 27 weeks and over 0 10 20 30 40 50 Percentage of unemployment Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-29 Unemployment by Demographic Group Black males 16-19 Black females 16-19 White males 16-19 White females 16-19 Business cycle peak Black males 20 and over Black females 20 and over Business cycle trough White males 20 and over White females 20 and over 0 Copyright © 2000 Addison Wesley Longman, Inc. 10 20 30 Unemployment rate 40 Slide 7-30 Unemployment and Full Employment There are three types of unemployment: 1) Frictional 2) Structural 3) Cyclical Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-31 Unemployment and Full Employment Frictional Unemployment • Arises from normal labor turnover — people entering and leaving the labor force and the creation and destruction of jobs • Influenced by unemployment benefits Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-32 Unemployment and Full Employment Structural Unemployment • Arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs • Typically lasts longer than frictional Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-33 Unemployment and Full Employment Cyclical Unemployment • Arises from the fluctuations of the business cycle • Increases during a recession and decreases during and expansion • The natural rate of unemployment excludes cyclical unemployment Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-34 Unemployment and Full Employment Full employment exists when the unemployment rate equals the natural rate of unemployment. • It fluctuates periodically • Economists disagree about the size of the natural rate and the extent to which it fluctuates Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-35 Learning Objectives (cont.) • Describe the sources of unemployment, its duration, and the groups that are most affected by it • Describe the relationship between employment, unemployment, and real GDP Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-36 Unemployment and Real GDP Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-37 Unemployment and Real GDP Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-38 Unemployment and Real GDP • As real GDP fluctuates around potential GDP, the unemployment rate fluctuates around the natural rate of unemployment. • In the deep recession of 1982, unemployment reached almost 10 percent. • In the milder recession of 1990-1991, the unemployment rate peaked at less than 8 percent. Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-39 The End Copyright © 2000 Addison Wesley Longman, Inc. Slide 7-40