Unemployment: Labor Market and Indicators

3 MONITORING JOBS After studying this chapter, you will be able to:  Explain why unemployment is a problem and ho w we measure the unemployment rate and othe r labor market indicators  Explain why unemployment occurs and why it is present even at full employment...

3 MONITORING JOBS After studying this chapter, you will be able to:  Explain why unemployment is a problem and ho w we measure the unemployment rate and othe r labor market indicators  Explain why unemployment occurs and why it is present even at full employment © 2016 Pearson Education © 2016 Pearson Education  Employment and Unemployment What kind of job market will you enter when you graduate? The class of 2014 had a tough time: In July 2014, 10 million Americans wanted a job but couldn ’t find one and 8 more had given up looking for a full-time j ob and taken a part-time job. The U.S. economy creates lots of jobs: 139 million people had jobs during the recession of 2009. But in recent years, the population has grown faster than t he number of jobs, so unemployment is a serious problem. © 2016 Pearson Education  Employment and Unemployment Why Unemployment Is a Problem Unemployment results in  Lost incomes and production  Lost human capital The loss of income is devastating for those who bear it. E mployment benefits create a safety net but don’t fully repla ce lost wages, and not everyone receives benefits. Prolonged unemployment permanently damages a person’ s job prospects by destroying human capital. © 2016 Pearson Education  Employment and Unemployment Current Population Survey The population is divided into two groups: 1. The working-age population—the number of people a ged 16 years and older who are not in jail, hospital, or som e other institution 2. People too young to work (under 16 years of age) or in i nstitutional care © 2016 Pearson Education  Employment and Unemployment The working-age population is divided into two groups: 1. People in the labor force 2. People not in the labor force The labor force is the sum of employed and unemployed workers. © 2016 Pearson Education  Employment and Unemployment To be counted as unemployed, a person must be in one of the following three categories: 1. Without work but has made specific efforts to find a job within the previous four weeks 2. Waiting to be called back to a job from which he or she has been laid off 3. Waiting to start a new job within 30 days © 2016 Pearson Education  Employment and Unemployment Figure shows the labor fo rce categories. In June 20 14: Population: 318 million Working-age population: 2 48 million Labor force: 156.0 million Employed: 146.3 million Unemployed: 9.7 million © 2016 Pearson Education © 2016 Pearson Education  Employment and Unemployment Three Labor Market Indicators The unemployment rate The employment-to-population ratio The labor force participation rate © 2016 Pearson Education  Employment and Unemployment The Unemployment Rate The unemployment rate is the percentage of the labor for ce that is unemployed. The unemployment rate is (Number of people unemployed ÷ labor force)  100. In June 2014, the labor force was 156 million and 9.7 million were unemployed, so the unemployment rate w as 6.2 percent. The unemployment rate increases in a recession and reac hes its peak value after the recession ends. Rate will be measure over time © 2016 Pearson Education  Employment and Unemployment Figure shows the unemployment rate: 1980–2014. The unemployment rate increases in a recession. © 2016 Pearson Education  Employment and Unemployment The Employment-to-Population Ratio The employment-to-population ratio is the percentage o f the working-age population who have jobs. The employment-to-population ratio is (Number of Employed people ÷ Working-age population)  100. In June 2014, the number of employed people was 146.3 million and the working-age population was 248 million. The employment-to-population ratio was 59 percent. © 2016 Pearson Education  Employment and Unemployment The Labor Force Participation Rate The labor force participation rate is the percentage of t he 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 wor king-age population was 248 million. The labor force participation rate was 62.9 percent. Means 59 employed from each 100 © 2016 Pearson Education  Employment and Unemployment Figure shows that the labor force participation rate and the employment-to-population ratio both trended upward befor e 2000 and downward after 2000. © 2016 Pearson Education  Employment and Unemployment Other Definitions of Unemployment The purpose of the unemployment rate is to measure the u nderutilization of labor resources. The Bureau of Labor Statistics (BLS) believes that the une mployment rate gives a correct measure. But the official measure is an imperfect measure because i t excludes Marginally attached workers Part-time workers who want full-time jobs © 2016 Pearson Education  Employment and Unemployment Marginally Attached Workers A marginally attached worker is a person who currently i s neither working nor looking for work but has indicated th at he or she wants and is available for a job and has looke d for work sometime in the recent past. A discouraged worker is a marginally attached worker w ho has stopped looking for a job because of repeated failur e to find one. © 2016 Pearson Education  Employment and Unemployment 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 th em. In the official statistics, these workers are called economic part-time workers and they are partly unemployed. Most Costly Unemployment All unemployment is costly, but the most costly is long-ter m unemployment that results from job loss. © 2016 Pearson Education Employment and Unemployment Measures of Unemployment. © 2016 Pearson Education  Employment and Unemployment Total population 262.029 million In the labor force 162.052 million (61.8%) Employed 155.175 million Unemployed 6.877 million Out of the labor force 99.977 million (38.2%) © 2016 Pearson Education Calculating Labor Force Percentages To determine the percentage in the labor force: Step 1. Divide the number of people in the labor force (162.052 mi llion) by the total adult (working-age) population (262.029 million). Step 2. Multiply by 100 to obtain the percentage. Percentage in the labor force = 162.052 /262.029 = 0.6184 = 61.84% © 2016 Pearson Education To determine the percentage out of the labor force: Step 1. Divide the number of people out of the labor fo rce (99.977 million) by the total adult (working-age) po pulation (262.029 million). Step 2. Multiply by 100 to obtain the percentage. Percentage out of the labor force= 99.977 / 262.029 =0.3815 =38.2% © 2016 Pearson Education To determine the unemployment rate: Step 1. Divide the number of unemployed people (6.87 7 million) by the total labor force (162.052 million). Step 2. Multiply by 100 to obtain the rate. Unemployment rate = 6.877 / 162.052 = 0.0416 = 4.2% © 2016 Pearson Education  Unemployment and Full Employment Unemployment can be classified into three types: Frictional unemployment Structural unemployment Cyclical unemployment seasonal unemployment. © 2016 Pearson Education  Unemployment and Full Employment Frictional Unemployment Frictional unemployment is unemployment that arises fr om normal labor market turnover. The creation and destruction of jobs requires that unemplo yed workers search for new jobs. Increases in the number of people entering and reentering the labor force and increases in unemployment benefits rai se frictional unemployment. Frictional unemployment is a permanent and healthy phen omenon of a growing economy. © 2016 Pearson Education  Unemployment and Full Employment Structural Unemployment Structural unemployment is unemployment created by c hanges in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs. Structural unemployment lasts longer than frictional unem ployment. Then labor market need new skills and knowledge © 2016 Pearson Education  Unemployment and Full Employment Cyclical Unemployment is the higher than normal unem ployment at a business cycle trough and lower than norma l unemployment at a business cycle peak. A worker who is laid off because the economy is in a reces sion and is then rehired when the expansion begins experi ences cyclical unemployment. Seasonal unemployment is when people who work in se asonal jobs become unemployed when demand for labor d ecreases, This typically occurs when a specific time of yea r ends or a new season begins, such as for a holiday or du e to weather changes. © 2016 Pearson Education  Unemployment and Full Employment “Natural” Unemployment Natural unemployment is the unemployment that arises fro m frictions and structural change when there is no cyclical unemployment. Natural unemployment is all frictional and structural unem ployment. The natural unemployment rate is natural unemployment as a percentage of the labor force. © 2016 Pearson Education  Unemployment and Full Employment Full employment is defined as the situation in which the u nemployment rate equals the natural unemployment rate. When the economy is at full employment, there is no cyclic al unemployment or, equivalently, all unemployment is frict ional and structural. Closing the gap between natural and cyclical unemploymt causes full employment. © 2016 Pearson Education  Unemployment and Full Employment The natural unemployment rate changes over time and is i nfluenced by many factors. Key factors are The age distribution of the population The scale of structural change The real wage rate Unemployment benefits © 2016 Pearson Education  Effects of unemployment Effects of unemployment: Unemployment has social, economic and negative effects: From an economic point of view, unemployment negativ ely affects the process of creating income, causing aggreg ate demand to decrease and the standard of living to decli ne. Socially, unemployment helps increase the crime rate. Politically, unemployment harms political stability and wo uld cause riot and political unrest. © 2016 Pearson Education  Unemployment and Full Employment How can we solve unemployment problem?  Promote education for everyone.  Make job training more accessible.  Create microfinance programs.  Increase jobs in labor-intensive industries.  Invest in infrastructure.  Reduce barriers to unemployment insurance.  Create affordable housing. © 2016 Pearson Education