© 2019 Pearson
Are we back at full employment?
© 2019 Pearson
Jobs and Unemployment
6
CHAPTER CHECKLIST
When you have completed your
study of this chapter, you will be able to
1 Define the unemployment rate and other labor market
indicators.
2 Describe the trends and fluctuations in the indicators of
labor market performance in the United States.
3 Describe the types of unemployment, define full
employment, and explain the link between
unemployment and real GDP.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Current Population Survey
Every month, 1,600 interviewers working on a joint
project of the Bureau of Labor Statistics (BLS) and the
Bureau of the Census survey 60,000 households to
establish the age and job market status of each member
of the household.
Working-age population is the total number of
people aged 16 years and over who are not in a jail,
hospital,
or some other form of institutional care or in the U.S.
Armed Forces.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
The working-age population is divided into those in the
labor force and those not in the labor force.
Labor force is the number of people employed plus the
number unemployed.
In May 2016, the U.S. labor force was 158.4 million—
151.0 million people were employed and 7.4 million
people were unemployed.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Population Survey Criteria
The survey counts as employed all persons who,
during the week before the survey:
[Link] at least 1 hour in a paid job or 15 hours
unpaid in family business.
[Link] not working but who had jobs from which they
were temporarily absent.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
The survey counts as unemployed
everyone who, during the week before
the survey:
1. Had no employment,
2. Were available for work,
and either:
1. Had made efforts to find employment
during the previous four weeks, or
2. Were waiting to be recalled to a job
from which they had been laid off.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Figure 22.1 shows population labor force categories.
The figure shows the data for May 2016.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Three Main Labor Market Indicators
• Unemployment rate
• Employment−population ratio
• Labor force participation rate
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Unemployment rate is the percentage of people in the
labor force who are unemployed.
Number of
people unemployed
Unemployment rate = x 100
Labor force
The unemployment
rate in May 2016
was 4.7 percent.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Employment−population ratio is the percentage of the
working-age population who are employed.
Employment− Number of people employed
= x 100
population ratio Working-age population
In May 2016, the
employment−population
ratio was 59.7 percent.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Labor force participation rate is the percentage of the
working-age population who are members of the labor
force.
Labor force Labor force
= x 100
participation rate Working-age population
In May 2016, the labor
force participation rate
was 62.6 percent.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Alternative Measures of Unemployment
The official definition of unemployment omits two types
of labor:
• Marginally attached workers
• Part-time workers who want full-time work
A marginally attached worker is a person who does
not have a job, is available and willing to work, has not
made specific efforts to find a job within the previous
four weeks, but has looked for work sometime in the
recent past.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Discouraged worker is a marginally attached worker
who has not made specific efforts to find a job within
the previous four weeks because previous
unsuccessful attempts were discouraging.
In May 2016, 538,000 people were discouraged
workers and 1,713,000 people were marginally attached
workers.
By adding all these workers to the number unemployed
and the labor force, the unemployment rate becomes
6.0 percent─1.3 percentage points higher than the
official unemployment rate.
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
Part-Time Workers Who Want Full-Time Work
Full-time workers are people who usually work 35
hours or more a week.
Part-time workers are people who usually work less
than 35 hours a week.
Part-time for economic reasons are people who work
1 to 34 hours per week but are looking for full-time
work. (Also called involuntary part-time workers)
© 2019 Pearson
22.1 LABOR MARKET INDICATORS
In May 2016, when employment was 151.0 million,
full-time employment was 123.1 million and
part-time employment was 27.9 million.
An estimated 4.6 million people worked part time for
economic reasons.
When this number, along with marginally attached
workers, is added to both the number unemployed and
the labor force, the unemployment rate becomes
9.6 percent.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Unemployment Rate
Figure 22.2 shows the unemployment rate: 1929–2016.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
From 1948 to 2016, the average unemployment rate was
5.8 percent.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Great Depression
A period of high unemployment, low incomes, and extreme
economic hardship that lasted from 1929 to 1939.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The unemployment rate increases in recessions …
and decreases in expansions.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The Participation Rate
The participation rate increased from 59 percent in 1960
to 67 percent at its peak in 1999.
Between 1960 and 1999, the participation rate for
women increased from 37 percent to 60 percent.
Between 1960 and 2016, the participation rate for men
decreased from 83 percent to 70 percent.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Figure 22.3
shows the
changing face of
the labor market.
The labor force
participation rate
increased until
1999 and then
fell slightly.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
The labor force
participation
rate of women
has increased.
The labor force
participation
rate of men has
decreased.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Alternative Measures of Unemployment
The official measure of unemployment does not
include marginally attached workers and people who
work part time for economic reasons.
The Bureau of Labor Statistics (BLS) now provides three
broader measures, known as U-4, U-5, and U-6, that
include these broader groups of the jobless.
The official unemployment rate is called U-3 and there
are two narrower measures U-1 and U-2.
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-1 Unemployed
for 15 weeks or
more
U-2 People laid
off or had a
temporary job
U-3 Total (official)
unemployment.
(as percentages
of labor force)
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
U-4 U-3 plus
discouraged
workers
U-5 U-4 plus
other marginally
attached workers
U-6 U-5 plus part
time for economic
reasons
(as percentages of labor force plus
unemployed in the added category)
© 2019 Pearson
22.2 LABOR MARKET TRENDS AND FLUCTUATIONS
Each measure of
the unemploy-
ment rate rises
during each
recession …
and falls between
recessions.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
The key reason why there is always some
unemployment is because the labor market is constantly
churning.
New jobs are created and old jobs die; and some people
move into the labor force and some move out of it. This
churning creates unemployment.
We distinguish among three types of unemployment:
• Frictional unemployment
• Structural unemployment
• Cyclical unemployment
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Frictional unemployment is the unemployment that
arises from normal labor turnover—from people
entering and leaving the labor force and from the
ongoing creation and destruction of jobs.
For example, a graduate
interviewing for his first job.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Structural unemployment is the unemployment that
arises when changes in technology or international
competition change the skills needed to perform
jobs or change the locations of jobs.
For example, when banks
introduced the automatic
teller machine in the
1970s, many bank-teller
jobs were destroyed.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Cyclical unemployment is the fluctuating
unemployment over the business cycle that increases
during a recession and decreases during an
expansion.
For example, during the recession of 2008–2009, many
workers were laid off as business activity declined.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
“Natural” Unemployment
“Natural” unemployment is the unemployment that arises
from frictions and structural change when there is no
cyclical unemployment—when all the unemployment is
frictional and structural.
Natural unemployment rate is the natural
unemployment as a percentage of the labor force.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Full employment occurs when the unemployment
rate equals the natural unemployment rate.
At full employment, all the unemployment is frictional or
structural—and not cyclical unemployment.
The major influences on natural unemployment are:
• Age distribution of the population
• The pace of structural change
• The real wage rate
• Unemployment benefits
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Unemployment and Real GDP
Cyclical unemployment is the fluctuating unemployment
over the business cycle—unemployment increases
during recessions and decreases during expansions.
At full employment, there is no cyclical unemployment.
At the business cycle trough, cyclical unemployment is
positive.
At the business cycle peak, cyclical unemployment is
negative.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Potential GDP is the value of real GDP when the
economy is at full employment.
Because the unemployment rate fluctuates around the
natural unemployment rate, real GDP fluctuates
around potential GDP:
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential
GDP.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
When the economy is at full employment, real GDP
equals potential GDP and there is no output gap.
Output gap (khoảng cách đầu ra) equals real GDP
minus potential GDP, expressed as a percentage of
potential GDP.
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP and the
output gap is negative.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential GDP
and the output gap is positive.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
Figure 22.5 shows this
relationship. •Tại Đáy chu kỳ (Trough): Chi tiêu ở
mức thấp nhất, sản xuất đình trệ. Do
The unemployment rate đó, thất nghiệp chu kỳ mang giá trị
fluctuates around the dương (positive), đẩy tỷ lệ thất
natural unemployment rate: nghiệp thực tế lên cao hơn mức tự
nhiên.
• Falling below the natural •Tại Đỉnh chu kỳ (Peak): Nhu cầu
rate when cyclical mua sắm cực cao, doanh nghiệp cần
hoạt động hết công suất. Họ tuyển
unemployment is negative. dụng thêm rất nhiều lao động, khiến
thất nghiệp chu kỳ mang giá trị âm
• Rising above natural rate (negative). Lúc này, tỷ lệ thất nghiệp
when cyclical unemploy- thực tế giảm xuống dưới mức tự
ment is positive. nhiên.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
As the unemployment rate
fluctuates around the natural
unemployment rate in part (a),
the output gap fluctuates
around zero in part (b).
• When the unemployment
rate is below the natural
rate, the output gap is
positive.
• When the unemployment
rate exceeds the natural
rate, the output gap is
negative.
© 2019 Pearson
22.3 UNEMPLOYMENT AND FULL EMPLOYMENT
During a recession, the
unemployment rate exceeds
the natural unemployment
rate in part (a), and …
the output gap in part (b) is
negative.
© 2019 Pearson
EYE on the PAST
The U.S. economy has spent a long time away from full
employment.
In 2009, the unemployment rate was 10 percent and the
U-6 measure of underutilized labor was almost 18 percent.
The recovery from this recession was long and slow.
In mid-2016, policy makers asked:
Is the recovery now complete? Are we back at full
employment?
© 2019 Pearson
EYE on the PAST
At full employment, the unemployment rate equals the
natural unemployment rate.
So let’s compare the BLS measure of the unemployment
rate and the CBO estimate of the natural unemployment
rate.
In the first quarter of 2016, the actual and natural
unemployment rates were equal at 4.9 percent.
So on these numbers, we’re back at full employment.
© 2019 Pearson
EYE on the PAST
But the natural unemployment rate is only an estimate.
It varies over time and is influenced by many factors.
Also, the employment–population ratio and the labor force
participation rate data point to a different answer to the full-
employment question.
Both of these measures fell by 3 percentage points
between 2007 and 2016.
Three percent of the working-age population had
disappeared from the labor force. Where did these people
go? Did they represent hidden unemployment?
© 2019 Pearson
EYE on the PAST
The Atlanta Fed suggests using Z-Pop ratio: the percentage
of the working-age population that is fully utilized.
The fully utilized are the people working full-time, working
part-time for a noneconomic reason, and who say they
don’t want a job.
© 2019 Pearson
EYE on the PAST
Before the 2008-
2009 recession,
95.2 percent of
the population
was fully utilized
by this definition.
The number fell
and then slowly
climbed to 94.5
percent of the
population.
© 2019 Pearson
EYE on the PAST
So the Z-Pop ratio
gives almost the
same answer as
that by comparing
the unemployment
rate with the
natural
unemployment
rate, but not quite.
The Z-Pop ratio shows a small amount of underused labor
remaining in 2016.
© 2019 Pearson