ECN 111 Chapter 6 Lecture Notes

6.1 Labor Market Indicators

A. Current Population Survey
1. The Bureau of Labor Statistics and the Bureau of the Census survey 50,000
households to determine the labor market status of its members.
2. The U.S. population is divided into two groups: the working-age population and
others who are too young to work or who live in institutions and are unable to
work.
a. The working-age population is the total number of people aged 16 years and
over who are not in jail, hospital, or some other form of institutional care. In
June 2002, the working-age population was 213.8 million.
3. The working-age population is divided into two groups: those in the labor force and
those not in the labor force.
a. The labor force is the number of people employed plus the number
unemployed. In June 2002, U.S. labor force was 143.7 million.
B. Population Survey Criteria
1. A person is counted as employed if during the week before the survey that person
a. Worked at least 1 hour as paid employee, or worked 15 hours or more as unpaid
workers in his or her family business.
b. Was not working but had a job or business from which he or she was temporarily
absent.
2. A person is counted as unemployed if during the week before the survey the
person
a. Had no employment
b. Was available for work
c. And either had made specific efforts to find employment during the previous
four weeks or was waiting to be recalled to a job in which he or she had been
laid off.
d. In June 2002, the number of unemployed workers was 8.7 million.
3. People not in the labor force are those in the working-age population who are
neither employed nor unemployed.
C. Two Main Labor Market Indicators
1. The unemployment rate is the percentage of the people in the labor force who
are unemployed.
(Number of people unemployed)
a. The unemployment rate   100.
(Labor force)
b. In June 2002, the unemployment rate was 6.1 percent.
2. The labor force participation rate is the percentage of working-age population
who are members of the labor force.
(Labor force)
a. The labor force participation rate   100.
(Working - age population)
b. In June 2002, the labor force participation rate was 67.2 percent.
D. Discouraged Workers
A discouraged worker is a person who is available and willing to work but has not
made specific efforts to find a job within the previous four weeks. It is estimated that
if these workers were added to the measured number of unemployed, the June 2002
unemployment rate would rise from 6.0 percent to 9.2 percent.
E. Part-time Workers
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. They fall
into two categories:
 1. Involuntary part-time workers are people who work 1 to 34 hours per week but
who are looking for full-time work. They cannot find work because of unfavorable
business conditions or because of seasonal decreases in the availability of full-time
work.
2. Part-time workers for noneconomic reasons do not want to work full time and are
not available for such work because of health problems, family or personal
responsibilities, or education commitments.
F. Aggregate Hours
Aggregate hours are the total number of hours worked by all the people employed,
both full time and part time, during a year.
1. Aggregate hours equal the number of people employed multiplied by the average
work hours per person.
2. In June 2002, 135 million people worked an average of 34.7 hours per week. With
50 workweeks per year, aggregate hours were 234.2 billion.
6.2 Labor Market Trends and Fluctuations
A. Unemployment
1. Between1962 to 2002, the average U.S. unemployment rate was 5.9 percent.
a. In 2001 and 2002, the unemployment rate increased as the U.S. economy went
into a recession.
b. The 1960s expansion was the result of demands on the economy from growth in
defense production during the Vietnam War and expansion of social spending
programs.
c. The 1970s and 1980s were years of above average unemployment.
d. The unemployment rate peaked at almost 10 percent during the 1982 recession.
B. The Participation Rate
1. The participation rate increased from 59 percent during the 1960s to 67 percent
during the 1990s.
2. Cyclical fluctuations in the participation rate are mild and result from unsuccessful
job seekers becoming discouraged workers.
3. The main reason for the increase in participation rate is the increase in the number
of women who have entered the labor force. Between 1962 and 2002, the
participation rate of women increased from 38 percent to 60 percent. There are
four main reasons:
a. More women pursued a college education and so increased their earning power.
b. Technological change in the work place created a large number of white-collar
jobs with flexible hours that women found attractive.
c. Technological change in the home increased the time available for paid
employment.
d. Families wanted a second income to balance tight budgets.
4. The male labor force participation rate decreased from 82 percent in 1962 to 74
percent in 2002. There are three reasons:
a. Some men retired early because of an increase in wealth.
b. Some part of the decrease arose from job loss at an age at which finding a new
job was difficult
c. More men remained in full-time education.
C. Part-time Workers
1. The percentage of workers who are part time has increased, but not by much. In
1972, 16 percent of workers were part time. That number grew to 17 percent in
2002.
2. The part-time percentage fluctuates with the business cycle. In the 1982 recession,
it reached 19.2 percent and in the 1990-1991 recession, it reached 18.1 percent.
During the expansion years after 1994, the part-time percentage declined.
3. The involuntary part-time rate has averaged 27 percent. In the recession of 1982
the rate climbed to approach 33 percent. During the 1990s expansion, the
involuntary part-time rate fell.
 D. Aggregate and Average Hours
1. Aggregate hours increased by 77 percent between 1962 to 2002 even though the
number of people employed over that time has increased by 100 percent.
2. Average hours per worker decreased from 39 hours a week during the early 1960s
to 34 hours a week during the 1990s. This decrease occurred for two reasons:
a. Average hours worked by full-time workers decreased.
b. The number of part-time jobs increased faster than the number of full-time jobs.
6.3 The Sources and Types of Unemployment
A. Sources of Unemployment
1. Job losers are people who are fired or laid off from their jobs, either permanently or
temporarily. People lose their jobs for a variety of reasons: some are not a good
match for the job, firm failure, or technological change.
2. Job leavers are people who voluntarily quit their jobs either for a better job or to
leave the labor force.
3. Entrants are people who have just left school and are entering the job market,
while reentrants are people who have previously had jobs, left the labor force, and
are now again looking for jobs.
B. How Unemployment Ends
1. Hires and recalls — people who have been unemployed but have been hired to
start a new job are “hires” and people who have been temporarily laid off and who
start work again are “recalls.”
2. Withdrawals — people who have been unemployed and who decide to stop looking
for jobs. Most are discouraged workers.
C. Types of Unemployment
1. Frictional Unemployment
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.
2. Structural Unemployment
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.
3. Seasonal Unemployment
Seasonal unemployment is the unemployment that arises because of seasonal
weather patterns.
4. Cyclical Unemployment
Cyclical unemployment is the fluctuating unemployment over the business cycle
that increases during a recession and decrease during an expansion.
D. Duration and Demographics of Unemployment
1. In 1983 when the economy was recovering from a recession, almost a quarter of
the unemployed took more than 26 weeks to find a job.
2. In the economic expansion of 2000, almost all of the unemployed found a new job
in less than 14 weeks.
3. Unemployment across demographic groups varies.
a. The unemployment rate is highest among black teenagers.
b. The unemployment rate is lowest among whites aged 20 years and over.
E. Full Employment
Full employment occurs when there is no cyclical unemployment or, equivalently,
when all unemployment is frictional, structural, and seasonal.
1. The natural unemployment rate is the unemployment rate at full employment.
F. Unemployment and Real GDP
Potential GDP is the level of real GDP that the economy would produce if it were at
full employment. Cyclical unemployment fluctuates over the business cycle:
1. When the unemployment rate is above the natural unemployment rate, real GDP is
below potential GDP.
2. When the unemployment rate is below the natural unemployment rate, real GDP is
above potential GDP.
3. When the unemployment rate is equal to the natural unemployment rate, real GDP
equals potential GDP