Measuring Unemployment

• Losing a job is a distressing economic event that can lead to financial trouble, anxiety, and reduced self-esteem
• Unemployment is not just a personal tragedy but also a macroeconomic issue, as it hinders the production of goods and services, dragging down economic prosperity.
• Economists differentiate between long-run and short-run joblessness:
• Natural rate of unemployment: The normal amount of unemployment an economy typically experiences
• Cyclical unemployment: Year-to-year fluctuations around the natural rate, associated with short-run economic activity fluctuations
• While the natural rate of unemployment is not necessarily desirable or constant, it represents the level of unemployment that persists even in the long run.
• This chapter addresses key questions about unemployment:
• How the government measures unemployment
• Interpretation challenges
• Typical duration of unemployment

Measuring Unemployment in the U.S.

• In the U.S., the Bureau of Labor Statistics (BLS), part of the Department of Labor, measures unemployment
• Each month, the BLS releases data on unemployment, employment types, workweek length, and unemployment duration
• The data is collected from the Current Population Survey of approximately 60,000 households
• The BLS categorizes adults (16+) into three groups:
• Employed: Paid employees, those working in their own business, or unpaid workers in a family member's business; includes full-time and part-time workers, and those temporarily absent from their jobs due to vacation, illness, or bad weather
• Unemployed: Those not employed, available for work, and actively seeking employment in the prior four weeks; also includes those awaiting recall from a temporary layoff
• Not in the labor force: Those who do not fit into the employed or unemployed categories, e.g., full-time students, homemakers, and retirees
• In December 2021, the adult population was 262.1 million
• Employed individuals: 156.0 million
• Labor force: 162.3 million
• Not in labor force: 99.8 million
• Unemployed individuals: 6.3 million
• The labor force is the sum of the employed and the unemployed, according to the BLS
• The unemployment rate is the percentage of the labor force that is unemployed
• The labor-force participation rate measures the percentage of the total adult population in the United States that is in the labor force
• In December 2021:
• 61.9% of the U.S. adult population participated in the labor market.
• 3.9% of the labor market participants were without work
• BLS data allows economists and policymakers to track economic changes over time
• The economy always experiences some level of unemployment, varying from year to year
• Actual unemployment rate in 2021: 5.4%
• The Congressional Budget Office estimated a natural rate of: 4.5%

Difficulties in Measuring Unemployment

• Distinguishing between full-time workers and those not working at all is relatively easy
• It can be tricky to determine who counts as unemployed among those not working.
• Labor force movements are frequent, with over a third of the unemployed being recent entrants
• Recent entrants include young people seeking their first jobs
• People who had left the labor force but now look for work are also included in the data
• Almost half of unemployment spells end when the person stops looking for work and leaves the labor force
• Interpreting unemployment statistics is challenging. Some who are unemployed may not be actively seeking a job, or may be working "under the table."
• Discouraged workers who have given up looking for a job don't show up in unemployment statistics
• The BLS calculates various measures of labor underutilization because of these issues.
• The official rate, is considered the more appropriate measure of joblessness

Duration of Unemployment

• Key consideration of the severity of unemployment is whether is that the unemployment is short or long term
• Short-term unemployment suggests workers need only a few weeks to find suitable positions
• Long-term unemployment indicates a more serious issue, with potential economic and emotional suffering
• Most unemployment spells are short, but most unemployment observed at any given time is long-term

The Jobs Number

• The BLS releases the unemployment rate and the number of jobs gained or lost in the previous month, at the start of each month .
• The "jobs number" is a key indicator of short-run economic trends
• While the household survey of 60,000 households yields the unemployment rate, the number of jobs results come from a separate survey of 160,000 business establishments with over 40 million workers' payroll
• The establishment survey data announced simultaneously with the household survey results
• Both surveys report total employment, but the results are not always the same
• The establishment survey has a larger sample and is considered more reliable.
• The surveys measure employment differently, for example:
• A person with two part-time job at different companies is counted as one employee but as two jobs in the establishment survey
• Self Employed workers are counted in household survey, but not in the establishment survey
• The establishment survey is closely watched for data on jobs, yet do not define unemployment
• The household survey is the go-to source measuring the number of unemployed, defining how many people are without jobs trying to find them
• While the complexities of measuring unemployment and statistical interpretation is complex, as well as duration, the text has yet to explain the root cause

Causes of Unemployment

• Standard models usually do not provide an explanation for the cause of unemployment in the first place
• The labor market is unable to reach equilibrium
• Unemployment never truly hits zero, but fluctuates around its natural rate
• The chapter will present deviations from the common supply and demand to explain the cause behind it

Four Explanations for Unemployment

• The first explanation is the diversity of jobs and workers requires time for workers to find which jobs is a good employment fit
• Results derive from job search, called fricitional unemployment
• Explain the short spells of unemployment
• The second explanation is that the wages are above the equilibrium level and the number of jobs is less
• Causes unemployment from some labor markets
• Can be the result of minimum wage laws, unions, and efficiency wages
• Results derive from structural unemployment
• Explain the longer spells of unemployment

Job Search

• Workers find appropriate jobs through job searches, which can be time-consuming
• Workers have different tastes and skills, and jobs have different attributes
• Information about job candidates and job openings spreads gradually
• The labor market constantly changes - with firms either rising or falling, their demand for labor shifts causing fricitional unemployment
• Consumers may prefer cars from Tesla over Ford, Tesla increases employment, and Former Ford Workers needs to look for new jobs that Tesla must fill.
• Employment can go up or down. As with oil prices changing, firms respond with cutting back production or employment.
• Changes in the composition of demand among industries or regions are called sectoral shifts
• it takes time for workers to search for jobs in the new sectors
• International trade patterns can also change causing to frictional employment
• Nations export goods for which they have comparative advanrtage of
• Workers transition leads to make take the transition
• The economy is always changing making frictional unemployment inevitable
• Even if inevitable, information about job and worker are needed

Government Intervention

• The internet can help with the spread of the job searches
• Policy reduces time from people needing new jobs, reducing the economy's natural rate of unemployment
• The U.S. Economy has very little intervention
• Public policy may be able to reduce the time it takes unemployed wokrers to fin new jobs

Government Programs

• Programs seek to assist job searching in many ways
• Government run employment agencies provide information about job vancancies
• Aim to assist disadvantaged groups escape poverty or transition industries
• critics question whether these programs should play a role, arguing that private markets and government is no better
• Much of this education is done privately through jobs

Unemployment Insurance

• Programs offer workers partial protection but increase frictional unemployment from job loss
• Ineligible cases, includes the unemployed that quit, or were fired
• In order to qualify to receive benefits, workers need to be laid off
• Program terms can vary over time as well as state, but will typically receive 50% of the former wages
• Benefits can stop when taking a new job
• Workers may not try as hard, can turn down offers
• Receiving benefits, means employees can be unlikely to seek the guarantees and job security from negotiations with employers
• Illinoise launched an experiment in 1985 providing 500$ bonus if workers found new work withing 11 weeks, and decreased the amount of days unemployment by 7%
• studies prove the when unemplyed become eligble for benefits, their changes of finding new job grows.
• The program achieves its initial goal of reducing the income uncertainty
• Frictional unemployment happens when the process of job search
• Structural employment happens when positions are insufficient for workers

Minimum-Wage Laws

• Focuses on how minimum-wage laws can cause unemployment
• Are not the main reason for the unemployment issue in the U.S.
• Important to understand the the other reasons behind this structural unemployment
• If binding, will force the wage to stay at the same level that balances
• Quantity of labor goes up, demand goes down
• Unemployment rates results in the U.S. are low
• Effects a small percentage of the work force. Wages are still higher than the legal minimum, but do prevent it from happening
• Should the wage be held above any level, the resulting is unemployment

Unions

• workers bargain with wages, benefits, and conditions

• Membership peaking between 1940s and 1950s. Is about 33% today

• In the U.S, unions are typically small, however many European countries contain large populations in Belgium, Norway, and Sweden

• Wages are not in equilibrium

• The law of cartel is usually applied to combining forms join force to limit competition, it applies to unions as well

• Unions are sellers that action in their joint market power.

• A final agreement withdrawal can result in a strike. Which firms would attempt to pay wages than the firm.

• 10-20 percent more workers earn in unions earn more that those that do

• creates high conflict between the insiders that benefit, and the outsiders that don't.

• Increase supply and demand in unemployment.

• increase labor increases, industries decrease wages. Only in the unions will workers that Collective bargain, but workers also do it at the cost

• The laws around collective bargaining control union roles in the ecconomy

• Policymakers of antitrust and labor codes feel workers need high power

• Encatced in 1935 and amended, prevents and interferes with workers trying to organize unions.

• state lawmakers can right to work laws. This is an important topic of debate

• states can bar a employer from having unions to financially support the workers

• Employees have to pay union fees to be a worker

• Congress must approve unions

• Prevent firms from hiring permanent replacements for workers on strike

• striking workers would no longer losing jobs, making strikes viable, increasing markets power

• Prevent airlines and railroad strikes should union/employers at the end require them that need to have the remaining disagreements resolved by arbitration.

• Policy debate that helps determines the future unions moving.

• Economists disagree about unions being good or bad.

• Union downsides are cartels.

• Labor demand is the major negative due to unions raising wages

• The rest of the economists are reduced

• Allocation critics is both inefficient and inefficient

• Employment firms is the inequitable side of these.

• The other side of the unions are an necessary antidote to market power hires.

• Workers concerns with the company town is necessary to stop being at the mercy. The advocates seek that unions help the firms, being a helpful view

• Represent workers by giving workers on there jobs provide rights to job attributes

• content workforce with productive, unions offer efficiency

Mismatch

Unemployment is a mismatch between the number of firms seeking job and workers that are If workers that train them as truck drivers, they may not find the employers if the employees haven't completed the education or college they can have issues if the workers live in Texas, can not get jobs due to this reason, labor rates would allow them to get job opportunities if they can fix a lot the issue

Efficiency Wages

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A second efficiency theory is worker turner over

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