Macroeconomics Dr.

Sauer

Measuring Unemployment (ch10) I. Measuring Unemployment The Bureau of __________________ Statistics computes unemployment statistics. - monthly The information comes from the Current Population Survey (CPS) - _____________________ survey of households - a sample of 60,000 households - personal and telephone interviews - __________________: labor force unemployment

employment persons not in the labor force

The basic concepts involved are simple: - People with jobs are ________________________. - People who are jobless, looking for jobs, and available for work are ___________________. - People who are neither employed nor unemployed are ______________________________. Excluded from these categories are persons - under 16 years of age - confined to institutions (ex: nursing homes, prisons) - on active duty in the military Why not count the military? - ___________________, it was not counted because service wasnt necessarily voluntary. - In __________, the 10th anniversary of all-volunteer armed forces, the BLS ________________ military personnel. - In 1994 the BLS __________________ counting them. - not accurate reporting from military (ex: fast deployments) - not same data categories as BLS used - didnt seem to matter

1. employed - did any __________________________ or profit during the survey week - at least 15 hours of ____________________ in a _______________________ enterprise operated by someone in their household - _________________________ from their regular jobs, whether they were paid or not Not all of the job situations in the American economy fit neatly into a given category. Persons also are counted as ______________________ if they _________________ at which they _____________________ during the survey week because they were: On vacation Ill Experiencing child-care problems Taking care of some family/personal obligation On maternity or paternity leave Involved in an industrial dispute Prevented from working by bad weather

2. unemployed Persons are classified as unemployed if they - do not have a job - have ____________________ for work in the prior 4 weeks - are currently ______________________ for work Workers expecting to be recalled from layoff are counted as unemployed, whether or not they have engaged in a specific job-seeking activity. In all other cases, the individual must have been engaged in at least one active job search activity in the 4 weeks preceding the interview and be available for work (except for temporary illness).

3. not in the labor force Persons not in the labor force are those who are not classified as _______________________ during the survey week. Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force.

The Labor Force is the ______________________________ in the economy, whether they are employed or unemployed. Labor Force = number employed + number unemployed

The labor force is ____________________________ number of people. - It increases with the long-term growth of the population. - It responds to economic forces and social trends - Its size changes with the seasons. The seasonal fluctuations in the number of employed and unemployed people reflect - normal seasonal weather patterns - the hiring (and layoff) patterns that accompany regular events such as the winter holiday season and the summer vacation season To deal with such problems, a statistical technique called ___________________________ is used.

The ______________________________________________ is the percent of the total eligible population that is in the Labor Force: LPF = # in the Labor Force adult population x 100

The _________________________________ is the percent of the Labor Force that is unemployed: U= # unemployed # in Labor Force x 100

www.BLS.gov

The entire US population is about 310 million. Subtracting people under 16, the military and people in institutions, the number of potential workers is:

Of this number, how many are actually in the labor force?

The table says the labor force participation rate is 64.2%. Verify this number using the formula for the labor force participation rate. Of all the potential workers, this is the portion who are working or wish to work.

Verify that the labor force is the sum of employed people and unemployed people:

Verify that the number of people not in the labor force is the eligible population minus the labor force:

Notice that there are people who arent in the labor force, but who want a job. - discouraged workers who have stopped looking for a job but would take one if it were available - some areas have no jobs (dying factory towns, economically depressed areas) so why bother looking? The table says the unemployment rate is 9%. Verify this number using the formula for the unemployment rate.

Which states have the highest unemployment?

Which states have the lowest unemployment?

What do we know about unemployment in states that are not on this list?

www.bls.gov

Some _______________________ with the Unemployment rate measure: - people enter/exit the labor force at will - how to know if people are actively looking for work? - discouraged workers dont count - underemployment isnt measured

II . Types of Unemployment 1. Natural Rate of Unemployment = the ______________________ of unemployment in a country 2. Cyclical Unemployment = the _________________________ of the unemployment rate from its natural rate - varies with the business cycle

3. Frictional Unemployment = even in good economic times, it ______________________ to look for a job, apply, get interviewed, and get hired ex: you graduate and start looking for a job 4. Structural Unemployment = caused by a ____________________ between jobs offered by employees and potential workers in some labor markets ex: number of vacancies may be equal to the number of the unemployed but - lack the skills needed for the jobs available - jobs are in a different part of the country 5. Seasonal Unemployment = the unemployment that accompanies ___________________________ ex: ski season, harvest time

Because of structural and frictional unemployment, the unemployment rate is ________________ zero. Even when the economy is doing very well, there will be some unemployment. - the natural rate of unemployment - the full-employment rate of unemployment The natural rate of unemployment is roughly equal to the ______________ of Frictional and Structural unemployment. 5

III. Job Search Because _______________________ from one another in terms of their skills and tastes and jobs differ in their attributes, it is often ______________________ for workers to match with the appropriate job. The faster information spreads about job openings and worker availability, the more rapidly the economy can match workers and firms. Government programs ____________________ to reduce the amount of frictional unemployment. Government-run _________________________ give out information on job vacancies. Public _____________________ can ease the transition of workers from declining to growing industries and help disadvantaged groups escape poverty. Unemployment __________________________ is one way that government intervenes in the labor market. Because unemployment insurance reduces the hardship of unemployment, it also increases the amount of unemployment that exists. Many studies have shown that more generous unemployment insurance benefits lead to reduced job search effort and, as a result, more unemployment.

IV. Other Causes of Unemployment 1. Minimum wage laws In the labor market, the supply curve is the workers wanting to work. The demand curve is firms hiring. The market clearing wage is deemed to be too low so a minimum wage is implemented. What is the result?

Who earns the minimum wage? In 2006, the Department of Labor released a study concerning workers who reported earnings at or below the minimum wage. - Of all workers paid an hourly rate in the United States, about 2% of men and 3% of women reported wages at or below the minimum wage. - Minimum-wage workers tend to be young, with about half under the age of 25. - Minimum-wage workers tend to be less educated. Of those workers ages 16 and over with a high school education, only 2% earned the minimum wage. - The industry with the highest proportion of workers with reported wages at or below the minimum wage was leisure and hospitality. - The proportion of workers earning the prevailing minimum wage has trended downward since 1979. Minimum wage laws _________________ the young, least educated and those in the leisure/hospitality industry. Minimum wage laws also contribute to ________________________ among the young, least educated and those in the leisure/hospitality industry. 2. ________________ wages are above equilibrium wages paid in an attempt to increase productivity. reasons: - decrease worker turnover - increase worker effort - attract better workers - improve worker health (only in developing nations) 7

Anytime the wage is above equilibrium, _________________________ will be a result. - more people willing to work at that wage than there are jobs available

3. Unions A Union is a group that tries to __________________________higher wages, better benefits, and better working conditions for __________________. - collective bargaining - strike They play a smaller role in the US economy now than they once did. - still prevalent in many European nations Union workers can earn from 10% to 20% more than non-union workers. Because the wage is pushed up past equilibrium, there will be some ___________________. - union members vs non-union members

Are Unions Good or Bad for the Economy? __________________ of unions argue that unions are a cartel, which causes inefficiency because fewer workers end up being hired at the higher union wage. __________________of unions argue that unions are an answer to the problems that occur when a firm has too much power in the labor market. _________________________________________________________________________________ Summary: The unemployment rate is the percentage of those who would like to work but do not have jobs. The unemployment rate is an imperfect measure of joblessness. Just because someone doesnt have a job, it doesnt mean they are unemployed. In the U.S. economy, most people who become unemployed find work within a short period of time. There are several reasons for unemployment even in good economic times: - takes time to find a job matching your preferences and skills - dynamic, changing economy will always have some sectors that become obsolete - wages paid above equilibrium - minimum wage laws - unions - efficiency wages