Chapter 5 Part 1 Unemployment

Transcription

1 Chapter 5 Part 1 Unemployment Objectives: Explain how we measure the unemployment rate and other labor market indicators Explain why unemployment occurs and why it is present even at full employment Explain why inflation is a problem and how we measure the inflation rate In July 2014, 10 million Americans wanted a job but couldn t find one. 8 million more had given up looking for a fulltime job and taken a part-time job. In December 2016, 7.5 million Americans wanted a job but couldn t find one. 5.5 million more had given up looking for a fulltime job and taken a part-time job. 1

2 Why Unemployment Is a Problem Lost incomes and production Lost human capital Loss of income is personally devastating. Loss of production economy not at its potential Prolonged unemployment permanently damages a person s job prospects by destroying human capital. This is economist speak for people loose skills How Measured Each month the U.S. Census Bureau conducts a survey to determine the status of the U.S. labor force. The population is divided into two groups: 1. The working-age civilian population - the number of people aged 16 years and older who are not in jail, hospital, or some other institution 2. People too young to work (under 16 years of age) or in institutional care The working-age population is divided into two groups: 1. People in the labor force 2. People not in the labor force Labor force = number of employed + number of unemployed. People who have a job or are looking for one. 2

3 How Unemployment Is Measured Monthly Household Survey Live survey of 60,000 households across America, covering 110,000 people. Employed or unemployed: Don t have a job Actively search for work during the previous four weeks 7 How the BLS Measures Employment Status BLS interviewers ask a series of questions to determine whether an individual is employed, unemployed, or not in the labor force. 8 How Unemployment Is Measured Unemployment rate Fraction of the labor force that is without a job 9 3

4 Employment Status of the U.S. Population August Economist Use Three Labor Market Indicators The unemployment rate The labor force participation rate The employment-to-population ratio unemployment rate The ratio of the number of people unemployed to the total number of people in the labor force. unemployed unemployment rate = employed + unemployed labor force participation rate The ratio of the labor force to the total population 16 years old or older. labor force labor force participation rate = population employment population ratio The ratio of the number of people employed to the total population 16 years old or older. employment population ratio = employed population 4

5 The Unemployment Rate The unemployment rate is the percentage of the labor force that is unemployed. In June 2014, the labor force was 156 million ( ) and 9.7 million were unemployed, so the unemployment rate was 6.2 percent: = In June 2017, the labor force was million ( ) and 7.0 million were unemployed, so the unemployment 7.0 rate was 4.4 percent: = The is what is reported in the news. U-3 measure. Called headline unemployment. The unemployment rate: The unemployment rate increases in a recession. Unemployment Rate unemployment rate The percentage of the labor force that is unemployed. 5

6 Unemployment Questions What causes unemployment to rise and fall? Can monetary and fiscal policies be used to keep the unemployment rate low? What are the obstacles? The Employment-to-Population Ratio The employment-to-population ratio is the percentage of the working-age population who have jobs. Calculated as: (Number Employed Working-age population) 100. In June 2014, number employed was million and the working-age population was 248 million. The employment-to-population ratio was 59 percent. In June 2017, number employed was million and the working-age population was million. The employment-to-population ratio was 60.1 percent. The Employment Population Ratio:

7 The Employment Population Ratio: The Labor Force Participation Rate The labor force participation rate is the percentage of the working-age population who are members of the labor force. The labor force participation rate is (Labor force Working-age population) 100. In June 2014, the labor force was 156 million and the working-age population was 248 million. The labor force participation rate was 62.9 percent. In June 2017, the labor force was million and the working-age population was million. The labor force participation rate was 62.8 percent. Labor Force Participation Rate:

8 Its Not Just Demographics 23 Labor Force Participation Rate: Overall in Blue and Age in Red Other Definitions of Unemployment The purpose of the unemployment rate is to measure the underutilization of labor resources. But the official measure is an imperfect measure because it excludes Marginally attached workers Part-time workers who want full-time jobs 8

9 Marginally Attached Workers A marginally attached worker is a person who currently is neither working nor looking for work but has indicated that he or she wants and is available for a job and has looked for work sometime in the past 12 months. A discouraged worker is a subset of the marginally attached who has looked for work in the past 12 months but stopped looking for a job because of repeated failure to find one. Part-Time Workers Who Want Full-Time Jobs Many part-time workers want to work part time, but some part-time workers would like full-time jobs and can t find them. In the official statistics, these workers are called employed part-time for economic reasons (economic part-time workers) and they are considered to be employed. Most Costly Unemployment All unemployment is costly, but the most costly is long-term unemployment that results from job loss. 9

10 Alternative Measures of Unemployment The BLS reports six alternative measures of the unemployment rate: two narrower than the official measure which is called U-3 and three broader ones. The narrower measures, U-1 and U-2 (SKIP) The broader measures, U-4, U-5, and U-6, focus on assessing the full amount of unused labor resources. The Six U s Table A This figure shows six alternative measures. U-3: The official unemployment rate 10

11 All measures increase together in recession. Unemployment and Full Employment Unemployment can be classified into three types: Frictional unemployment Structural unemployment Cyclical unemployment Unemployment and Full Employment Frictional unemployment is unemployment that arises from normal labor market turnover. Voluntary separation and the creation and destruction of jobs requires that unemployed workers search for new jobs. Increases in the number of people entering and reentering the labor force and increases in unemployment benefits raise frictional unemployment. These workers have skills that are needed takes time to match the skills with the need. 11

12 Unemployment and Full Employment Structural Unemployment Structural unemployment is unemployment created by changes in the market for labor that change the skills needed to perform jobs or the locations of jobs. Can be caused by technology and foreign competitio Structural unemployment lasts longer than frictional unemployment. Skill mismatch. These workers do not have needed skills. Must retrain or relocate. Unemployment and Full Employment Cyclical Unemployment Cyclical unemployment a result of the business cycle. A worker who is laid off because the economy is in a recession and is then rehired when the expansion begins. Fiscal and monetary policy attempt to address cyclical unemployment. Fiscal and monetary policy can not reduce frictional and structural unemployment. Unemployment and Full Employment Natural Unemployment or Natural Rate of Unemployment Natural rate of unemployment is the sum of frictional and structural unemployment. Full employment is defined as the situation where the unemployment rate equals the natural unemployment rate. At full employment, there is no cyclical unemployment or, equivalently, all unemployment is frictional and structural. 12

13 Real GDP and Unemployment Over the Business Cycle Potential GDP is the quantity of real GDP produced at full employment. It measures the capacity of the economy to produce output on a sustained basis. Actual real GDP minus potential GDP is called the Output Gap. Over the business cycle, actual real GDP fluctuates around potential GDP and the output gap fluctuates Over the business cycle, the actual unemployment rate fluctuates around the natural rate of unemployment. Unemployment and Full Employment This figure shows the output gap (actual real GDP minus potential real GDP) and the fluctuation of unemployment around the natural rate. When the output gap is negative,... the unemployment rate exceeds the natural rate. europa.eu/statistics_e xplained/index.php/un employment_statistics Unemployment rate higher in Europe. Primarily structural. Higher benefits, for longer periods of time which reduce incentives to accept jobs or acquire skills. Legal obstacles laying off workers 42 13