© 2013 pearson. how long does it take to find a job?

© 2013 Pearson

How long does it take

to find a job?

© 2013 Pearson

22When 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.

CHAPTER CHECKLIST

Jobs and Unemployment

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22.1 LABOR MARKET INDICATORS

Current Population SurveyEvery 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.

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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 August 2011, the U.S. labor force was 153.6 million—139.6 million people were employed and 14.0 million people were unemployed.

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Population Survey Criteria

The survey counts as employed all persons who, during the week before the survey:

1. Worked at least 1 hour in a paid job or 15 hours unpaid in family business.

2. Were not working but who had jobs from which they were temporarily absent.

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The survey counts as unemployed all persons 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.

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Figure 22.1 shows population labor force categories.

The figure shows the data for August 2011.

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Two Main Labor Market Indicators• The unemployment rate• The labor force participation rate

Unemployment rate is the percentage of people in the labor force who are unemployed.

Unemployment rate =

Number ofpeople unemployed

x 100Labor force

In August 2011, the unemployment rate was 9.1 percent.

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Labor force participation rate is the percentage of the working-age population who are members of the labor force.

Labor force participation rate = Working-age population

x 100Labor force

In August 2011, the labor force participation rate was 64 percent.

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Alternative Measures of UnemploymentThe official definition of unemployment omits two types of labor:

• Marginally attached workers

• Part-time workers

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.

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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 August 2011, 988,000 people were discouraged workers and 1,432,000 people were other marginally attached workers.

Adding these workers to the number unemployed and the labor force, the unemployment rate becomes 10.5 percent.

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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.

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)

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In August 2011, when employment was 139.6 million, full-time employment was 112.6 million and part-time employment was 27.0 million.

An estimated 8.8 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 16.2 percent.

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22.2 LABOR MARKET TRENDS AND FLUCTUATIONS

Unemployment Rate

Figure 22.2 shows the U.S. unemployment rate: 1929–2011

From 1948 to 2011, the average unemployment rate was 5.8 percent.

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The unemployment rate increases in recessionsand decreases in expansions.

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Great DepressionA period of high unemployment, low incomes, and extreme economic hardship that lasted from 1929 to 1939.

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The Participation Rate

The participation rate increased from 59 percent in 1960 to 67 percent at its peak in the late 2009s.

Between 1960 and 2000, the participation rate for women increased from 37 percent to 60 percent.

Between 1960 and 2000, the participation rate for men decreased from 84 percent to 72 percent.

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Figure 22.3 shows the changing face of the labor market.

The average labor force participation rate increased.

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The labor force participation rate of women has increased.

The labor force participation rate of men has decreased.

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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 of the unemployment rate, known as U-4, U-5, and U-6, that include these wider groups of the jobless.

The official unemployment rate is called U-3 and there are two narrower measures U-1 and U-2.

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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)

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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)

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Each measure of the unemploy-ment rate rises during a recession …

and falls between recessions.

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A Closer Look at Part-Time Employment

A part-time job is attractive to workers because they• Balance family with work

Part-time jobs are attractive to employers because• Benefits are not paid to part-time workers• Less government regulation of part-time workers

People who choose part-time jobs are part time for noneconomic reasons.

People who take part-time jobs because they can’t find full-time jobs are part time for economic reasons.

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Figure 22.5 shows part-time workers from 1980 to 2010.

Workers who are part-time for noneconomic reasons is steady at about 13 percent of all workers.

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Workers who are part time for economic reasons fluctuates with the business cycle,…

rising in recessions and falling in expansions.

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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

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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 looking for his first job.

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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, telephone switching is now done by computer, rather than by operators. Also, call centers have been relocated to India.

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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.

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“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.

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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

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Unemployment and Real GDPCyclical 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.

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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.

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When the economy is at full employment, real GDP equals potential GDP and there is no output gap.

Output gap 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.

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Figure 22.6 shows this relationship.

The unemployment rate fluctuates around the natural unemployment rate:

•Falling below the natural rate when cyclical unemployment is negative.

•Rising above natural rate when cyclical unemployment is positive.


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As the unemployment rate fluctuates around the natural unemployment rate in part (a), the output gap fluctuates 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.


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During recessions, the unemployment rate exceeds the natural unemployment rate in part (a), and the output gap in part (b) is negative.


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Some people are unemployed for a week or two and others for a year or more.

The average duration of unemployment varies over the business cycle—increasing in a recession and decreasing during an expansion.

In 2000, at a cycle peak when the unemployment rate was below the natural rate at 4 percent, the median time to find a job was 6 weeks.

In 2010, just after a cycle trough when the unemployment rate was above the natural rate at 9.6 percent, the median time to find a job was 22 weeks.

How Long Does it Take to Find a Job?

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The figure shows the percentage unemployed at four unemployment durations.

It shows that long-term unemployment barely exits at a business cycle peak but is large at a business cycle trough.

How Long Does it Take to Find a Job?

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