Employment / Unemployment

Key Questions
Who counts as “employed?”
Who doesn’t count?
Who is “unemployed?”
What is Full Employment for a country?
What is the Natural Rate of Unemployment?

Calculating Official Employment Figures
Start with the total population of the US:

• Subtract those under 16 
• Subtract those in the Armed Forces and "institutionalized"

Gives us"Non-Institutional Adult Civilians":

• Subtract those already retired and the “homemakers” 
• Subtract full time students over the age of 16
• Subtract the "discouraged" (those not looking)

We get the "Civilian Labor Force"

• Employed Full Time (40 hrs+)
• Part Time (15-39 hrs), counted during the week of the 12th of the month. 
• Employed unpaid workers in family businesses, if working over 15 hours in that business.
• Those on sick leave, on strike, or on vacation during the week of the 12th of the month. 
• include Unemployed because they are actively looking for work but can't find work, or are waiting for better careers, or seasonal changes.

Labor Force Participation Rate: Percentage of the adult population that is in the labor force. 

Unemployment Rate: the percentage of the labor force that is unemployed. 

UR = unemployed / labor force x 100 

Notes on the UR

• people who are willing to work but unable to find it at satisfactory wage rates. 
• 0 to 3% Overextended economy, war economy 
• 4 to 5% “Full Employment” Unemployment Rate (Efficient
• 6+% “Weak” Economy or “Recession” Economy 
• 25% Highest official unemployment rate in 1933

Four Kinds of Unemployment
"Good" or "OK" Unemployment: 

• Frictional:  We are between jobs because we choose new opportunities, choices, lifestyles, education levels, etc. 
• Seasonal:  We are waiting for the correct season to conduct our trade and know the interruption in work is temporary and natural.  We plan wages and hours accordingly. 

"Bad" Unemployment (Looking but can't find): 

• Cyclical:  The business cycle has turned against us and business is bad for a while.  We wait or seek government help. 
• Structural:  Technology and times have changed, therefore what we do no longer fits the market.  Now what?

Natural Rate of Unemployment (NRU): The employment rate at full employment 

RECALL: Efficiency does not mean 100% employment. 

• Efficiency means that some people will be unemployed. 
• frictional and structural unemployment exist even with zero cyclical unemployment

Costs of Unemployment 

• Forgone output (not enough stuff getting produced)
• "GDP Gap," operating inside the PPF

Okun's Law: for every 1 percentage point that exceeds the NRU, you get a GDP gap of 2%  

Unequal Burdens

• low skill labor: higher UE
• teenagers: highest UE
• less educated: higher UE 
• Racial / ethnic  

What is the impact of the following?


Other Examples

 

Possible Futures