Chapter 8
natural rate of unemployment.
Economists describe the remaining level of unemployment that occurs even when the economy is healthy as the
out of the labor force
Economists refer to this third group of those who are not working and not looking for work as
reasons why wages might be sticky downwards****
One argument is that even employees who are not union members often work under an implicit contract, which is that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong. This wage-setting behavior acts like a form of insurance: the employee has some protection against wage declines in bad times, but pays for that protection with lower wages in good times. Clearly, this sort of implicit contract means that firms will be hesitant to cut wages, lest workers feel betrayed and work less hard or even leave the firm. Efficiency wage theory argues that the productivity of workers depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate. One reason is that employees who are paid better than others will be more productive because they recognize that if they were to lose their current jobs, they would suffer a decline in salary. As a result, they are motivated to work harder and to stay with the current employer. In addition, employers know that it is costly and time-consuming to hire and train new employees, so they would prefer to pay workers a little extra now rather than to lose them and have to hire and train new workers. Thus, by avoiding wage cuts, the employer minimizes costs of training and hiring new workers, and reaps the benefits of well-motivated employees. The adverse selection of wage cuts argument points out that if an employer reacts to poor business conditions by reducing wages for all workers, then the best workers, those with the best employment alternatives at other firms, are the most likely to leave. The least attractive workers, with fewer employment alternatives, are more likely to stay. Consequently, firms are more likely to choose which workers should depart, through layoffs and firings, rather than trimming wages across the board. Sometimes companies that are going through tough times can persuade workers to take a pay cut for the short term, and still retain most of the firm's workers. But these stories are notable because they are so uncommon. It is far more typical for companies to lay off some workers, rather than to cut wages for everyone. The insider-outsider model of the labor force, in simple terms, argues that those already working for firms are "insiders," while new employees, at least for a time, are "outsiders." A firm depends on its insiders to grease the wheels of the organization, to be familiar with routine procedures, to train new employees, and so on. However, cutting wages will alienate the insiders and damage the firm's productivity and prospects. Finally, the relative wage coordination argument points out that even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan. Instead, workers confronted with the possibility of a wage cut will worry that other workers will not have such a wage cut, and so a wage cut means being worse off both in absolute terms and relative to others. As a result, workers fight hard against wage cuts. These theories of why wages tend not to move downward differ in their logic and their implications, and figuring out the strengths and weaknesses of each theory is an ongoing subject of research and controversy among economists. All tend to imply that wages will decline only very slowly, if at all, even when the economy or a business is having tough times. When wages are inflexible and unlikely to fall, then either short-run or long-run unemployment can result. Unemployment tends to rise in recessions and to decline during expansions. The overall state of the economy shifts the labor demand curve and, combined with wage that are sticky downwards, unemployment changes.
natural unemployment + cyclical unemployment rate
actual unemployment rate =
frictional UR + structural UR (where UR is unemployment rate)
natural UR =
Labor force
the number of employed plus the unemployed
structurally unemployed
are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills.
employment rate
the percentage of adults who are in the labor force and thus seeking jobs but who do not have jobs
Patterns of Unemployment
1. Unemployment rates do fluctuate over time. During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly 10%. During the Great Depression of the 1930s, the unemployment rate reached almost 25% of the labor force. 2. Unemployment rates in the late 1990s and into the mid-2000s were rather low by historical standards. The unemployment rate was below 5% from 1997 to 2000 and near 5% during almost all of 2006-2007. The previous time unemployment had been less than 5% for three consecutive years was three decades earlier, from 1968 to 1970. 3. The unemployment rate never falls all the way to zero. Indeed, it never seems to get below 3%—and it stays that low only for very short periods. 4. The timing of rises and falls in unemployment matches fairly well with the timing of upswings and downswings in the overall economy. During periods of recession and depression, unemployment is high. During periods of economic growth, unemployment tends to be lower. There is a however a lag. 5. No significant upward or downward trend in unemployment rates is apparent. Note that the U.S. population nearly quadrupled from 76 million in 1900 to over 314 million by 2012. Moreover, a higher proportion of U.S. adults are now in the paid workforce, because women have entered the paid labor force in significant numbers in recent decades. Women composed 18% of the paid workforce in 1900 and nearly half of the paid workforce in 2012. But despite the increased number of workers, as well as other economic events like globalization and the continuous invention of new technologies, the economy has provided jobs without causing any long-term upward or downward trend in unemployment rates.
labor force participation rate (LFPR)
Another important statistic is the labor force participation rate. This is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job. For the data from February 2015, the labor force participation rate is 62.8%. Historically, the civilian labor force participation rate in the United States climbed beginning in the 1960s as women increasingly entered the workforce, and it peaked at around 68% in late 1999 to early 2000. Since then, the labor force participation rate has steadily declined
False
Changes in technology and new workers joining the workforce have contributed to an overall upward Trend in the unemployment rate true or false
Unemployment rate equals unemployed people divided by total labor force x 100 unemployed people
How do you calculate the unemployment rate
True
It's very likely that an unemployment rate of 0% will never be observed true or false
Unemployment rate calculation (a simplified chart)
LF=E+U UR= (U/LF) * 100 E= Employed U= Unemployed LF= Labor Force Not in LF = not in labor force
Out of the labor force
Should everyone without a job be counted as unemployed? Of course not. Children, for example, should not be counted as unemployed. Surely, the retired should not be counted as unemployed. Many full-time college students have only a part-time job, or no job at all, but it seems inappropriate to count them as suffering the pains of unemployment. Some people are not working because they are rearing children, ill, on vacation, or on parental leave. The point is that the adult population is not just divided into employed and unemployed. A third group exists: people who do not have a job, and for some reason—retirement, looking after children, taking a voluntary break before a new job—are not interested in having a job, either. It also includes those who do want a job but have quit looking, often due to being discouraged by their inability to find suitable employment. Economists refer to this third group of those who are not working and not looking for work as out of the labor force or not in the labor force.
Figure 8.3 The U.S. Unemployment Rate, 1948-2014
The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of 4% to 6%. There does not seem to be a long-term trend toward the rate moving generally higher or generally lower. (Source: www.census.gov/cps)
labor force participation rate
This is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job.
frictional unemployment + structural unemployment
natural unemployment =
Discouraged workers
those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group
cyclical unemployment
unemployment closely tied to the business cycle like higher unemployment during a recession
implicit contract
which is that the employer will try to keep wages from falling when the economy is weak or the business is having trouble
Out of the labor force
Out of paid work and not actively looking for a job
Unemployed
Out of work and actively looking for a job
False
The end of the twentieth century saw some of the highest rates of unemployment in US history true or false
frictional unemployment
The unemployment that occurs in the meantime, as workers move between jobs
The rate of cyclical unemployment is 0%
Which item below is true if a nation is currently experiencing full unemployment
Charles is without a job and is able to work but not actively looking for work
Which of the following individuals is out of the labor force
True
The behavior of the unemployment rate is related to the business cycle true or false
How Is the U.S. Unemployment Data Collected? (cont.)
Based on this survey, unemployment rates are calculated by state, industry, urban and rural areas, gender, age, race or ethnicity, and level of education. A wide variety of other information is available, too. For example, how long have people been unemployed? Did they become unemployed because they quit, or were laid off, or their employer went out of business? Is the unemployed person the only wage earner in the family? The Current Population Survey is a treasure trove of information about employment and unemployment.
Figure 8.6 Sticky Wages in the Labor Market
Because the wage rate is stuck at W, above the equilibrium, the number of job seekers (Qs) is greater than the number of job openings (Qd). The result is unemployment, shown by the bracket in the figure. With "sticky" wages we can explain the existence of unemployment. The rise in unemployment that occurs because of a recession is cyclical unemployment.
Figure 8.4 Unemployment Rate by Demographic Group
By gender, 1972-2012. Unemployment rates for men used to be lower than unemployment rates for women, but in recent decades, the two rates have been very close, often with the unemployment rate for men somewhat higher. By age, 1972-2012. Unemployment rates are highest for the very young and become lower with age. By race and ethnicity, 1972-2012. Although unemployment rates for all groups tend to rise and fall together, the unemployment rate for whites has been lower than the unemployment rate for blacks and Hispanics in recent decades. (Source: www.census.gov/bls)
Cautions for cross-country comparisons of unemployment
Cross-country comparisons of unemployment rates need to be treated with care, because each country has slightly different survey tools for measuring unemployment and also different labor markets. Japan's unemployment rates appear quite low, but Japan's economy has been mired in slow growth and recession since the late 1980s, and Japan's unemployment rate probably paints too rosy a picture of its labor market. In Japan, workers who lose their jobs are often quick to exit the labor force and not look for a new job, in which case they are not counted as unemployed. Also, Japanese firms are often quite reluctant to fire workers, and so firms have substantial numbers of workers who are on reduced hours or officially employed, but doing very little. This Japanese pattern is perhaps best viewed as an unusual method for society to provide support for the unemployed, rather than a sign of a healthy economy. Comparing unemployment rates in the United States and other high-income economies with unemployment rates in Latin America, Africa, Eastern Europe, and Asia is very difficult. One reason is that the statistical agencies in many poorer countries lack the resources and technical capabilities of the U.S. Bureau of the Census. But a more difficult problem with international comparisons is that in many low-income countries, most workers are not involved in the labor market through an employer who pays them regularly. Workers in these countries are engaged in short-term work, subsistence activities, and barter. Moreover, the effect of unemployment is very different in high-income and low-income countries. Unemployed workers in the developed economies have access to various government programs like unemployment insurance, welfare, and food stamps; such programs may barely exist in poorer countries. Although unemployment is a serious problem in many low-income countries, it manifests itself in a different way than in high-income countries.
What Causes Changes in Unemployment over the Long Run
Cyclical unemployment explains why unemployment rises during a recession and falls during an economic expansion. But what explains the remaining level of unemployment even in good economic times? Why is the unemployment rate never zero? Even when the U.S. economy is growing strongly, the unemployment rate only rarely dips as low as 4%. Moreover, the discussion earlier in this chapter pointed out that unemployment rates in many European countries like Italy, France, and Germany have often been remarkably high at various times in the last few decades. Why does some level of unemployment persist even when economies are growing strongly? Why are unemployment rates continually higher in certain economies, through good economic years and bad?
natural rate of unemployment****
Economists describe the remaining level of unemployment that occurs even when the economy is healthy as the natural rate of unemployment. The term "natural" may be a bit confusing. It is not a physical and unchanging law of nature. Instead, it is only the "natural" rate because it is the unemployment rate that would result from the combination of economic, social, and political factors that exist at a time—assuming the economy was neither booming nor in recession. These forces include the usual pattern of companies expanding and contracting their workforces in a dynamic economy, social and economic forces that affect the labor market, or public policies that affect either the eagerness of people to work or the willingness of businesses to hire. Estimates by economists of the natural rate of unemployment in the U.S. economy in the early 2000s run at about 4.5 to 5.5%.
Hidden unemployment****
Even with the "out of the labor force" category, there are still some people that are mislabeled in the categorization of employed, unemployed, or out of the labor force. There are some people who have only part time or temporary jobs and who are looking for full time and permanent employment that are counted as employed, though they are not employed in the way they would like or need to be. Additionally, there are individuals who are underemployed. This includes those that are trained or skilled for one type or level of work who are working in a lower paying job or one that does not utilize their skills. For example, an individual with a college degree in finance who is working as a sales clerk would be considered underemployed. They are, however, also counted in the employed group. All of these individuals fall under the umbrella of the term "hidden unemployment." Discouraged workers, those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group
Table 8.4 International Comparisons of Unemployment Rates
From an international perspective, the U.S. unemployment rate typically has looked a little better than average. Table above compares unemployment rates for 1991, 1996, 2001, 2006 (just before the recession), and 2012 (somewhat after the recession) from several other high-income countries.
Take the number of people in the labor force that is the number employed and the number unemployed and divided by the total adult population and multiply that by 100
How do you calculate the labor force participation rate
Monthly
How frequently is the survey that determines unemployment released
Add the employed and unemployed
How to calculate the total labor force
Why Wages Might Be Sticky Downward*****
If a labor market model with flexible wages does not describe unemployment very well—because it predicts that anyone willing to work at the going wage can always find a job—then it may prove useful to consider economic models in which wages are not flexible or adjust only very slowly. In particular, even though wage increases may occur with relative ease, wage decreases are few and far between. One set of reasons why wages may be "sticky downward," as economists put it, involves economic laws and institutions. For low-skilled workers being paid the minimum wage, it is illegal to reduce their wages. For union workers operating under a multiyear contract with a company, wage cuts might violate the contract and create a labor dispute or a strike. However, minimum wages and union contracts are not a sufficient reason why wages would be sticky downward for the U.S. economy as a whole. Economists looking for reasons why wages might be sticky downwards have focused on factors that may characterize most labor relationships in the economy, not just a few.
Figure 8.7 Rising Wage and Low Unemployment: Where Is the Unemployment in Supply and Demand?
In a labor market where wages are able to rise, an increase in the demand for labor from D0 to D1 leads to an increase in equilibrium quantity of labor hired from Q0 to Q1 and a rise in the equilibrium wage from W0 to W1. In a labor market where wages do not decline, a fall in the demand for labor from D0 to D1 leads to a decline in the quantity of labor demanded at the original wage (W0) from Q0 to Q2. These workers will want to work at the prevailing wage (W0), but will not be able to find jobs.
Figure 8.5 The Unemployment and Equilibrium in the Labor Market
In a labor market with flexible wages, the equilibrium will occur at wage We and quantity Qe, where the number of people looking for jobs (shown by S) equals the number of jobs available (shown by D). If this is the case wages will adjust and there should be no unemployment, but in reality this not the case.
Cyclical Unemployment
Let's make the plausible assumption that in the short run, from a few months to a few years, the quantity of hours that the average person is willing to work for a given wage does not change much, so the labor supply curve does not shift much. In addition, make the standard ceteris paribus assumption that there is no substantial short-term change in the age structure of the labor force, institutions and laws affecting the labor market, or other possibly relevant factors. One primary determinant of the demand for labor from firms is how they perceive the state of the macro economy. If firms believe that business is expanding, then at any given wage they will desire to hire a greater quantity of labor, and the labor demand curve shifts to the right. Conversely, if firms perceive that the economy is slowing down or entering a recession, then they will wish to hire a lower quantity of labor at any given wage, and the labor demand curve will shift to the left. The variation in unemployment caused by the economy moving from expansion to recession or from recession to expansion (i.e. the business cycle) is known as cyclical unemployment.
The Natural Rate of Unemployment in Europe
Many European countries have a combination of generous welfare and unemployment benefits, together with nests of rules that impose additional costs on businesses when they hire. In addition, many countries have laws that require firms to give workers months of notice before laying them off and to provide substantial severance or retraining packages after laying them off. The legally required notice before laying off a worker can be more than three months in Spain, Germany, Denmark, and Belgium, and the legally required severance package can be as high as a year's salary or more in Austria, Spain, Portugal, Italy, and Greece. Such laws will surely discourage laying off or firing current workers. But when companies know that it will be difficult to fire or lay off workers, they also become hesitant about hiring in the first place. The typically higher levels of unemployment in many European countries in recent years, which have prevailed even when economies are growing at a solid pace, are attributable to the fact that the sorts of laws and regulations that lead to a high natural rate of unemployment are much more prevalent in Europe than in the United States.
What Causes Changes in Unemployment over the Short Run
One possibility for unemployment is that people who are unemployed are those who are not willing to work at the current equilibrium wage, say $10 an hour, but would be willing to work at a higher wage, like $20 per hour. The monthly Current Population Survey would count these people as unemployed, because they say they are ready and looking for work (at $20 per hour). But from an economist's point of view, these people are choosing to be unemployed. Probably a few people are unemployed because of unrealistic expectations about wages, but they do not represent the majority of the unemployed. Instead, unemployed people often have friends or acquaintances of similar skill levels who are employed, and the unemployed would be willing to work at the jobs and wages similar to what is being received by those people. But the employers of their friends and acquaintances do not seem to be hiring. In other words, these people are involuntarily unemployed. What causes involuntary unemployment?
The relationship between age and frictional unemployment
Prime-age workers," as those in the 25-54 age bracket are sometimes called, are typically at a place in their lives when they want to have a job and income arriving at all times. But some proportion of those who are under 30 may still be trying out jobs and life options and some proportion of those over 55 are eyeing retirement. In both cases, the relatively young or old tend to worry less about unemployment than those in-between, and their periods of frictional unemployment may be longer as a result. Thus, a society with ma relatively high proportion of relatively young or old workers will tend to have a higher unemployment rate than a society with a higher proportion of its workers in middle age.
Figure 8.8 Unexpected Productivity Changes and Unemployment
Productivity is rising, increasing the demand for labor. Employers and workers become used to the pattern of wage increases. Then productivity suddenly stops increasing. However, the expectations of employers and workers for wage increases do not shift immediately, so wages keep rising as before. But the demand for labor has not increased, so at wage W4, unemployment exists where the quantity supplied of labor exceeds the quantity demanded. The rate of productivity increase has been zero for a time, so employers and workers have come to accept the equilibrium wage level (W). Then productivity increases unexpectedly, shifting demand for labor from D0 to D1. At the wage (W), this means that the quantity demanded of labor exceeds the quantity supplied, and with job offers plentiful, the unemployment rate will be low.
Public Policy and the Natural Rate of Unemployment
Public policy can also have a powerful effect on the natural rate of unemployment. On the supply side of the labor market, public policies to assist the unemployed can affect how eager people are to find work. For example, if a worker who loses a job is guaranteed a generous package of unemployment insurance, welfare benefits, food stamps, and government medical benefits, then the opportunity cost of being unemployed is lower and that worker will be less eager to seek a new job. What seems to matter most is not just the amount of these benefits, but how long they last. A society that provides generous help for the unemployed that cuts off after, say, six months, may provide less of an incentive for unemployment than a society that provides less generous help that lasts for several years and vice-versa. On the demand side of the labor market, government rules social institutions, and the presence of unions can affect the willingness of firms to hire. For example, if a government makes it hard for businesses to start up or to expand, by wrapping new businesses in bureaucratic red tape, then businesses will become more discouraged about hiring. Government regulations can make it harder to start a business by requiring that a new business obtain many permits and pay many fees, or by restricting the types and quality of products that can be sold. If government makes it difficult to fire or lay off workers, businesses may react by trying not to hire more workers than strictly necessary. High minimum wages may discourage businesses from hiring low-skill workers.
Table 8.2 Reasons for Being Unemployed, February 2015 *****
Reason: new Entrants Re-entrants Job Leavers Job losers: temporary Job losers: non temporary Percentage: 11.20 30.50 10.20 11.70 36.30 The table above shows the four reasons for being unemployed (new entrant, re-entrant, job leaver, and job looser) and the percentages of the currently unemployed that fall into each category.
The Problem of Unemployment
The human costs of unemployment alone would justify making a low level of unemployment an important public policy priority. But unemployment also includes economic costs to the broader society. When millions of unemployed but willing workers cannot find jobs, an economic resource is going unused. An economy with high unemployment is like a company operating with a functional but unused factory. The opportunity cost of unemployment is the output that could have been produced by the unemployed workers. A rise or fall of just 0.1% in the unemployment rate of 155 million potential workers translates into 155,000 people, which is roughly the total population of a city like Syracuse, New York. Large rises in the unemployment rate mean large numbers of job losses. In November 2009, at the peak of the recession, about 15 million people were out of work. Even with the unemployment rate now at 5.5% as of February 2015, about 8 million people total are out of work.
The number of people who are counted as employed and unemployed
The labor force is compromised of the
Natural Unemployment and Potential Real GDP**
The natural unemployment rate is related to two other important concepts: full employment and potential real GDP. The economy is considered to be at full employment when the actual unemployment rate is equal to the natural unemployment. When the economy is at full employment, real GPD is equal to potential real GDP. By contrast, when the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential. Finally, when the economy above full employment, then the unemployment rate is less than the natural unemployment rate and real GDP is greater than potential. Operating above potential is only possible or a short while, since it is analogous to all workers working overtime.
structural unemployment****
The structurally unemployed are individuals who have no jobs because they lack skills valued by the labor market, either because demand has shifted away from the skills they do have, or because they never learned any skills. An example of the former would be the unemployment among aerospace engineers after the U.S. space program downsized in the 1970s. An example of the latter would be high school dropouts. Some people worry that technology causes structural unemployment. In the past, new technologies have put lower skilled employees out of work, but at the same time they create demand for higher skilled workers to use the new technologies. Education seems to be the key in minimizing the amount of structural unemployment. Individuals who have degrees can be retrained if they become structurally unemployed. For people with no skills and little education, that option is more limited. The type of skills that individuals have in this case is non-transferable and that is why they cannot move to another job when their old job is no longer available.
Figure 8.2 Employed, Unemployed, and Out of the Labor Force Distribution of Adult Population (age 16 and older), February 2015
The total adult, working-age population in February 2015 was 249.9 million. Out of this total population, 148.3 were classified as employed, and 8.7 million were classified as unemployed. The remaining 92.9 were classified as out of the labor force. As you will learn, however, this seemingly simple chart does not tell the whole story.
How Is the U.S. Unemployment Data Collected?
The unemployment rate announced by the U.S. Bureau of Labor Statistics each month is based on the Current Population Survey (CPS), which has been carried out every month since 1940. Great care is taken to make this survey representative of the country as a whole. The country is first divided into 3,137 areas. The U.S. Bureau of the Census then selects 729 of these areas to survey. The 729 areas are then divided into districts of about 300 households each, and each district is divided into clusters of about four dwelling units. Every month, Census Bureau employees call about 15,000 of the four-household clusters, for a total of 60,000 households. Households are interviewed for four consecutive months, then rotated out of the survey for eight months, and then interviewed again for the same four months the following year, before leaving the sample permanently.
Race and unemployment ***
The unemployment rate for African-Americans is substantially higher than the rate for other racial or ethnic groups, a fact that surely reflects, to some extent, a pattern of discrimination that has constrained blacks' labor market opportunities. However, the gaps between unemployment rates for whites and for blacks and Hispanics diminished in the 1990s. In fact, unemployment rates for blacks and Hispanics were at the lowest levels for several decades in the mid-2000s before rising during the recent Great Recession.
Gender and unemployment****
The unemployment rate for women had historically tended to be higher than the unemployment rate for men, perhaps reflecting the historical pattern that women were seen as "secondary" earners. By about 1980, however, the unemployment rate for women was essentially the same as that for men. During the recession of 2008-2009, the unemployment rate for men exceeded the unemployment rate for women. Through 2014, this pattern has remained, although the gap is narrowing.
frictional unemployment
The unemployment that occurs in the meantime, as workers move between jobs, is called frictional unemployment. Frictional unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered. The type of skills that individuals have in this case is transferable and that is why they can move from job to job but this move takes time during which that individual will be considered frictionally unemployed. The frictional unemployment that results from people moving between jobs in a dynamic economy may account for one to two percentage points of total unemployment.
Criticisms of Measuring Unemployment
There are always complications in measuring the number of unemployed. For example, what about people who do not have jobs and would be available to work, but have gotten discouraged at the lack of available jobs in their area and stopped looking? Such people, and their families, may be suffering the pains of unemployment. But the survey counts them as out of the labor force because they are not actively looking for work. Other people may tell the Census Bureau that they are ready to work and looking for a job but, truly, they are not that eager to work and are not looking very hard at all. They are counted as unemployed, although they might more accurately be classified as out of the labor force. Still other people may have a job, perhaps doing something like yard work, child care, or cleaning houses, but are not reporting the income earned to the tax authorities. They may report being unemployed, when they actually are working. Even imperfect measures like the unemployment rate, however, can still be quite informative, when interpreted knowledgeably and sensibly.
underemployed
This includes those that are trained or skilled for one type or level of work who are working in a lower paying job or one that does not utilize their skills.
EDUCATION and unemployment
Those with less education typically suffer higher unemployment. In February 2015, the unemployment rate for those with a college degree was 2.7%; for those with some college but not a four year degree, the unemployment rate was 5.1%; for high school graduates with no additional degree, the unemployment rate was 5.4%; and for those without a high school diploma, the unemployment rate was 8.4%. This pattern may arise because additional education offers better connections to the labor market and higher demand, or it may occur because the labor market opportunities for low-skilled workers are less attractive than the opportunities for the more highly skilled. Because of lower pay, low-skilled workers may be less motivated to find jobs.
Table 8.1 U.S. Employment and Unemployment, February 2015
Total adult population ove rthe age of 16 249.9 Million in the labor force: 157 million (62.8%) Employed: 148.3 Million Unemployed: 8.7 Million out of the labor force: 92.9 Million (37.2%) LF = E + U = 148.3 + 8.7 = 157 Pop16+ = LF + not in LF = 157 + 92.9 = 249.9 UR = U / LF *100 = 8.7 / 157 * 100 = 5.5% LFPR = LF / (pop16+) * 100 = 157 / 249.9*100 = 62.8%
False
Unemployment generally remain stable and static overtime true or false
Unemployment rate
Unemployment is typically described in newspaper or television reports as a percentage or a rate. The U.S. unemployment rate, which is based on a monthly survey carried out by the U.S. Bureau of the Census, asks a series of questions to divide up the adult population into employed, unemployed, or not in the labor force. To be classified as unemployed, a person must be without a job, currently available to work, and actively looking for work in the previous four weeks. Thus, a person who does not have a job but who is not currently available to work or has not actively looked for work in the last four weeks is counted as out of the labor force. The survey results are posted on "bls.gov" monthly. Employed: currently working for pay Unemployed: Out of work and actively looking for a job Out of the labor force: Out of paid work and not actively looking for a job Labor force: the number of employed plus the unemployed
The Establishment Payroll Survey
When the unemployment report comes out each month, the Bureau of Labor Statistics (BLS) also reports on the number of jobs created—which comes from the establishment payroll survey. The payroll survey is based on a survey of about 140,000 businesses and government agencies throughout the United States. It generates payroll employment estimates by the following criteria: all employees, average weekly hours worked, and average hourly, weekly, and overtime earnings. One of the criticisms of this survey is that it does not count the self-employed. It also does not make a distinction between new, minimum wage, part time or temporary jobs and full time jobs with "decent" pay.
Rescission
Which of the following is most directly related to cyclical unemployment
The US Bureau of Labor Statistics
Who reports the official United States unemployment rate
Age and unemployment***
Younger workers tend to have higher unemployment, while middle-aged workers tend to have lower unemployment, probably because the middle-aged workers feel the responsibility of needing to have a job more heavily. Younger workers move in and out of jobs (and in and out of the labor force) more easily. Elderly workers have extremely low rates of unemployment, because those who do not have jobs often exit the labor force by retiring, and thus are not counted in the unemployment statistics.
Efficiency wage theory
argues that the productivity of workers depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate
insider-outsider model
argues that those already working for firms are "insiders," while new employees, at least for a time, are "outsiders."
Employed
currently working for pay
reasons why wages might be sticky downwards****
implicit contract efficiency wage theory adverse selection of wage cuts argument insider-outsider model relative wage coordination argument
Relationship between actual, Natural, cyclical, frictional, and structural UR
natural unemployment = frictional unemployment + structural unemployment natural UR = frictional UR + structural UR (where UR is unemployment rate) actual unemployment rate = natural unemployment + cyclical unemployment rate If actual UR > natural UR, then cyclical UR > 0 If actual UR < natural UR, then cyclical UR < 0
relative wage coordination argument
points out that even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan.
adverse selection of wage cuts argument
points out that if an employer reacts to poor business conditions by reducing wages for all workers, then the best workers, those with the best employment alternatives at other firms, are the most likely to leave
