Quiz 5

Full Employment

Occurs when the only type of unemployment in the economy is structural and frictional unemployment

White-Collar Jobs

A worker who performs professional, desk, managerial or administrative work

Which of the following would be near zero when potential GDP equals real GDP? A. cyclical unemployment B. frictional unemployment C. structural unemployment D. seasonal unemployment

A. cyclical unemployment This is the definition of how the natural rate of unemployment and potential GDP are connected.

If someone moved with their spouse and was looking for a new job they would be considered ___ unemployed. A. frictionally B. structurally C. seasonally D. cyclically

A. frictionally This person is likely between jobs and thus is frictionally unemployed.

When we calculate the usual unemployment rate, the numerator has ___. A. the unemployed B. the labor force C. those working D. those who just retired

A. the unemployed This is the formula for the unemployment rate.

In one of our charts we looked at the number of jobs in the economy every year since 1970 (see https://fred.stlouisfed.org/graph/?g=ImvHLinks to an external site. ). It shows that about 80 million jobs were created from 1970 to today. But, in reality, many more jobs were created. A. true B. false

A. true Recall the book's description of "churn" in the labor market. In the typical month of a regular expansion millions of jobs are lost and millions more are created. Yet, net job growth is typically 100,000 or 200,000.

Is it possible for the economy to produce above potential GDP, and thus above the economy's capacity? A. yes B. no

A. yes Yes -- in class we defined "capacity" as the economy's production when factories and offices in a nation's economy are running normally. That is, they're not half-staffed nor working with extra overtime. As a result, for a time, it is possible to produce above capacity. More generally, this means that real GDP can be more than potential GDP. This happens when the economy is booming and it doesn't last more than a year or two. At times like these, it is great to be an employee as employers are desperate for workers. One of our videos illustrated this phenomena.

marginally attached workers: 2 million working part time but want full time work: 3 million unemployed: 10 million employed: 150 million population 16 & above: 200 million total population: 300 million From data in the above table, the unemployment rate would be ___. A. 10 million / 150 million B. 10 million / 160 million C. 15 million / 150 million D. 15 million / 165 million

B. 10 million / 160 million Remember that the unemployment rate is equal to the number unemployed/the labor force (employed + unemployed)

marginally attached workers: 2 million working part time but want full time work: 3 million unemployed: 10 million employed: 150 million population 16 & above: 200 million total population: 300 million From the data in the above table, the labor force would be ___. A. 150 million B. 160 million C. 162 million

B. 160 million The labor force is all those willing and able to work, or, equivalently, those working and those searching for a job. In the data above, this would be 150 million (working) plus10 million (those unemployed, who by definition are searching) or 160 million.

marginally attached workers: 2 million working part time but want full time work: 3 million unemployed: 10 million employed: 150 million population 16 & above: 200 million total population: 300 million From the data in the above table, the labor force participation rate would be ___. A. 150 million / 200 million B. 160 million / 200 million C. 150 million / 300 million D. 160 million / 300 million

B. 160 million / 200 million Remember the labor force participation rate is the labor force divided by the working age population (16 and above category)

Which one of the following three is least likely to belong with the other two? A. Real GDP is less than potential GDP. B. The economy has been in a strong expansion for 5 years C. The unemployment rate is above the natural rate.

B. The economy has been in a strong expansion for 5 years If real GDP is less than potential GDP, then it isn't surprising that the unemployment rate is above its natural rate. However, it would be unlikely that the economy had been in a strong expansion for 10 years. With a decade-long strong expansion, it is unlikely that real GDP would be less than potential GDP or that the unemployment rate would be above its natural rate.

Which of the following falls the most in a recession? The ___. A. the number unemployed B. The number employed C. labor force D. unemployment rate

B. The number employed In a recession, the number unemployed rises and the labor force tends to grow (see our charts). In addition, almost by definition, the unemployment rate grows in a recession. However, the number employed falls as firms lay workers off and as it is harder to get hired.

Who of the following individuals would be least likely to be in the labor force? A. a person without a job who had a job interview yesterday B. a person without a job who last looked 2 years ago C. a new Penn State grad who just attended a job fair

B. a person without a job who last looked 2 years ago If you have not looked for a job in the last month then you're not in the labor force.

Who of the following would be in the labor force? Please select all that are correct -- there may be more than one correct answer. (Please note that we will not have this style of question on the quiz). A. after graduation, you take a year off and backpack around the world on a gift from a generous uncle B. a retired member of your family who is being paid to be a school crossing guard C. a sibling of yours working at a part-time job this month D. a college student who goes to school full time E. your childhood friend who lives in his parent's basement and spends his time debugging video games for Electronic Arts (he telecommutes)

B. a retired member of your family who is being paid to be a school crossing guard C. a sibling of yours working at a part-time job this month Yes -- anyone working or searching for a job in the last month is in the labor force. The number of hours do not matter as long as they're working. E. your childhood friend who lives in his parent's basement and spends his time debugging video games for Electronic Arts (he telecommutes) Yes -- despite working in the basement, he is being paid as he telecommutes for Electronic Arts, a leading video game company.

The number employed could be larger than the labor force. A. true B. false

B. false The labor force is the number working plus those looking. For this to be true, the number looking would have to negative, which doesn't make sense.

Which is most likely to change in a recession? A. potential GDP B. real GDP

B. real GDP Pretty much by definition real GDP declines in a recession as production, income, and spending shrink. However, potential GDP describes what the economy can produce when it is operating at capacity, which is what can be produced sustainably. Thus, when a recession occurs, potential GDP is not affected. However, the economy is now below its potential as there are many empty office and factories and people who want to work but cannot find a job.

If an unemployed person was searching for a job and they start work at a new job, the labor force participation rate would ___. A. fall B. stay the same C. rise

B. stay the same This person is in the labor force either way, so the labor force participation rate would be unchanged.

If someone is laid off from their job and is searching for a new job, the labor force participation rate will ___. A. fall B. stay the same C. rise

B. stay the same While this person went from employed to unemployed (note they're still searching), they're still in the labor force.

Some years ago, a nationally known figure said the following (I put comment in brackets to clarify two parts): "...that although the government reported that there were 120,000 new jobs created in November, the 8.6 percent figure [unemployment rate] ignores the fact that 315,000 people left the workforce [we call it the labor force] entirely. Given that almost three times the number of people left the workforce than actually got jobs, it is impossible, ... for unemployment to have dropped by almost a half a percentage point." Is this person correct? That is, it is impossible for the unemployment rate to have dropped when people leave the labor force. A. this person is correct B. this person is incorrect

B. this person is incorrect The unemployment rate is the percent of the labor force that is unemployed and the labor force is those who are working and are not working but searching for a job. Thus, when someone leaves the labor force they are not counted as unemployed. Thus, it is not impossible for this to happen. See http://www.bls.gov/news.release/archives/empsit_12022011.htmLinks to an external site. for the actual release from the BLS.

When we calculate the usual unemployment rate, the denominator would not include which of the following? A. the unemployed B. those who quit looking for a job months ago C. those working at a new job D. those working at the same job for 10 years

B. those who quit looking for a job months ago If you quit looking for a job months ago (and have not looked since then) you're not in the labor force. The labor force is the denominator of the unemployment rate calculation.

In which situation would the labor force participation rate stay the same? A. when an 18 year old quits their first job and goes to college full-time with no paid job B. when someone is laid off and immediately starts to search for a new job C. when someone is laid off and goes on an extended vacation D. when a retired person dies

B. when someone is laid off and immediately starts to search for a new job Here we're looking for a situation where the labor force (the numerator) and the population aged 16 and above (the denominator) are unchanged. If someone was working and then quits, then the labor force declines, so this wouldn't work as an answer. The same holds if someone is laid off and doesn't look for a job as the labor force falls in this case as well. If a retired person dies, then the denominator declines. But, if someone is laid off and they start to search for a job, the labor force is unchanged. As this person is still aged 16 and above, the labor force participation rate is unchanged.

Underemployment Rate (U-6)

Broader unemployment rate, includes U-3 as well as marginally attached workers and part-time workers seeking full time jobs

If the unemployment rate in the U.S. was 2%, then real GDP would most likely be ___ potential GDP. A. below B. equal to C. above

C. above The natural rate of unemployment in the U.S. is in the 5-6%. Thus, if the unemployment rate was less, this means that a very large number of people are employed. This goes with a booming economy when real GDP is greater than potential GDP.

In the U.S., which of the following varies the most from year to year? A. frictional unemployment B. structural unemployment C. cyclical unemployment

C. cyclical unemployment Recall that frictional unemployment is due to people between jobs. Even in the best of times it can take weeks to connect employers with potential employees. An example would be a recent college grad with good skills in an in-demand major. In spite of these positive attributes, it would still take time to find a job. Structural unemployment is when someone's skills don't match employers needs. For example, a computer programmer who does not know currently in-demand computer languages (only old ones that are rarely used today) will likely have a difficult time finding a job. Cyclical unemployment is due to the business cycle. Specifically, when a recession arrives millions more will be unemployed as hiring declines and layoffs rise. Frictional and structural unemployment are always with us. But, they don't suffer abrupt changes -- it isn't as if millions more suddenly become frictionally or structurally unemployed. But, when a recession starts, millions more can be cyclically unemployed. For example, from the start to the end of the Great Recession there were 7 million fewer people employed.

What do job increases or decreases mean when released by the BLS?

When the BLS announces each month the increases or decreases in the number of persons employed and unemployed, these are net figures

For the sake of this question, let's assume that the economy has just come out of a severe recession and growth is booming. The labor force grows as many who thought that they could not find a job during the recession now think that they can and have started to look. But, these workers do not find a job this month. What do you think would happen to the labor force this month? A. fall B. stay the same C. rise

C. rise For the sake of this question, and to make the arithmetic straightforward, let's say that last month there were 10 million people unemployed and 100 million in the labor force. Thus, the unemployment rate would be 10% (i.e. 10/100). Now, say that this month another 1 million are searching for a job and they don't have a job, so the number unemployed would be 11 million and the labor force would be 101 million (recall it rises as there are now an additional 1 million searching for work). As a result, the unemployment rate would be 11/101 = 10.9%. Thus, the unemployment rate rose. In brief, when the economy quickly improves after a recession, many sometimes start to look for work and if they don't find a job that month, the unemployment rate will rise as the numerator in the unemployment rate formula grows proportionally more than the denominator. Thus, we sometimes see the unemployment rate rise as the economy comes out of a recession.

Who of the following is not in the labor force? A. a recent grad working on their first job B. a person just laid off last week and searching for a new job C. someone who is retired

C. someone who is retired A retired person is neither working nor looking for work, and thus is not in the labor force. A working person and someone looking for a job clearly is in the labor force.

Which of the following rose most consistently in the years since 1970? A. the number employed B. the unemployment rate C. the labor force

C. the labor force This is most easily seen by looking at the charts that show the behavior of these variables since 1970. But, there is a logic here too -- employment rises in expansions as business increase production and it falls in recessions as production declines. The unemployment rate moves in the opposite direction -- up in recessions and down in expansions. However, the labor force (both the employed and the unemployed) has grown pretty consistently over the years in the U.S. Recall that the labor force is all those willing and able to work and recessions has relatively little impact on the interest in working. However, the components of the labor force do vary over the business cycle, as described above.

marginally attached workers: 2 million working part time but want full time work: 3 million unemployed: 10 million employed: 150 million population 16 & above: 200 million total population: 300 million From data in the above table, the U-6 measure of unemployment (sometimes called the underemployment rate) would be ___. A. 10 million / 160 million B. 12 million / 162 million C. 15 million / 160 million D. 15 million / 162 million

D. 15 million / 162 million The numerator here is the unemployed + those marginally attached to the labor force (not working, didn't look in the past month but did in the past year) + those working part time that want to full time. This would be 10 + 2 + 3 = 15 million. The denominator would be the labor force (those working + those searching, or 150 + 10 = 160 million) + the marginally attached = 162 million.

If a technological advance made it easier to match potential employees with employers, we most likely would see less ___ unemployment and the natural rate of unemployment would ___. A. cyclical, rise B. cyclical, fall C. frictional, rise D. frictional, fall

D. frictional, fall If it was easier to match employers and potential employers then frictional unemployment would decline. This type of unemployment is caused by the time it takes to match these people and firms and here technology might reduce this time. Recall that cyclical unemployment is caused by recessions -- employers don't have sufficient work all who want to with with them. The problem here isn't matching, but insufficient demand for goods in the economy. Finally, with less frictional unemployment there would be a lower natural rate of unemployment as it is made up of frictional and structural unemployment.

What would be the most likely cause of a fall in the natural rate of unemployment? A. growth in real GDP over the last year B. more creative destruction across the economy C. more full-time work across the economy D. job seekers and employers use technology to speed up the job search process

D. job seekers and employers use technology to speed up the job search process Recall how the natural rate of unemployment is made up of the structurally and frictionally unemployed. If technology could reduced the number of people frictionally unemployed by more quickly matching employers and potential employees, then the natural rate of unemployment would fall.

Who of the following individuals would be most likely to be in the labor force? A. a stay at home parent B. an unemployed college grad who lives at home and has not looked for a job in 3 years C. a jobless person who quit looking for job two years ago D. someone who just started work at a new job

D. someone who just started work at a new job If you're working then you're in the labor force.

Which situation would cause the labor force participation rate to rise? A. when an 18 year old quits their first job and goes to college full-time with no paid job B. when someone is laid off and immediately starts to search for a new job C. when someone is laid off and goes on an extended vacation across the U.S. D. when a retired person dies

D. when a retired person dies A retired person is not in the labor force, but they are in the population aged 16 and above. Thus, when a retired person dies, the denominator of the labor force participation shrinks and there is no change in the numerator. Thus, the participation rate rises. All the other changes either keep the participation rate the same (when someone is laid off and starts searching -- the labor force is unchanged) or fall (as when the student leaves a job and goes to school full time).

Seasonal Unemployment

Frictional unemployment resulting from factors such as weather or variations in tourism or other calendar-related events. BLS will release a seasonally adjusted unemployment rate because of this

Employed

In government statistics, someone who currently has a job or who is temporarily away from his or her job

Unemployed

In government statistics, someone who is not currently at work but who is available for work and who has actively looked for work during the previous month

On a Company Payroll

Included in establishment survey, employees who were compensated for work by a firm

Not in the Labor Force

Includes retirees, homemakers, full-time students, hospital patients, those in active military service, those in prison, those available for work who haven't looked for a job in the last 4 weeks but have in the year and discouraged workers

Discouraged Workers

People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them

Job Search

Process of workers looking for employment

Establishment Survey/Payroll Survey

Samples multiple business establishments and uses payrolls to formulate data

Frictional Unemployment

Short-term unemployment that arises from the process of matching workers with jobs

Natural Rate of Unemployment/Full-Employment Rate of Unemployment

The normal rate of unemployment, consisting of frictional unemployment and structural unemployment

Unemployment Rate (U-3)

The percentage of the labor force that is unemployed. Calculated by dividing unemployed by labor force and multiplying by 100

Labor Force Participation Rate

The percentage of the working-age population in the labor force. Calculated by dividing labor force by working-age population and multiplying by 100

Employment-Population Ratio

The percentage of the working-age population that is employed. Calculated by dividing employed by working age population and multiplying by 100

Labor Market Churn

The process of the economy creating and destroying jobs

Labor Force

The sum of employed and unemployed workers in the economy

Current Population Survey/Household Survey

U.S. Census Bureau survey conducted to collect data needed to compute the unemployment rate

Cyclical Unemployment

Unemployment caused by a business cycle recession

Structural Unemployment

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs