chapter unemployment 15. identifying unemployment how is unemployment measured? – usual bls...

Chapter

Unemployment

15

Identifying Unemployment

• How is unemployment measured?– Usual BLS calculation considers only those who

are “active” in the current labor force1. Currently Employed2. Unemployed

– recently laid off (last 2 years)– applying for or currently collecting benefits– mean to capture those “actively looking”

• Not counted in the labor force– Not employed and not actively looking– Not unemployed

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Figure

The breakdown of the population in 2007

1

3

The Bureau of Labor Statistics divides the adult population into three categories: employed, unemployed, and not in the labor force.


• How is unemployment measured?• Labor force (participation rate of adults)

– Total number of adult workers in the labor force who are either:• Employed • Unemployed – but actively looking

• Labor force = Number of employed + Number of unemployed– Doesn’t count those not actively looking

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• How is unemployment measured?• Unemployment rate

– Percentage of labor force that is unemployed

• Labor-force participation rate– Percentage of adult population that is in the

labor force

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100force Labor

unemployed of Number rate ntUnemployme

100population Adult

force Labor rate ionparticipat force-Labor

Table

The labor-market experiences of various demographic groups

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6

Demographic Group Unemployment Rate Labor-force Participation Rate

Adults (ages 20 and older)White, maleWhite, female Black, male Black, female Teenagers (ages 16–19)White, male White, female Black, male Black, female

3.7%3.67.96.7

15.712.133.825.3

76.3%60.171.264.0

44.344.629.431.2

This table shows the unemployment rate and the labor-force participation rate of various groups in the U.S. population for 2007

Table

Labor Force Participation Rates – dropping recently

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Year

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAnnual

2004

66.1 66.0 66.0 65.9 66.0 66.1 66.1 66.0 65.8 65.9 66.0 65.9

2005

65.8 65.9 65.9 66.1 66.1 66.1 66.1 66.2 66.1 66.1 66.0 66.0

2006

66.0 66.1 66.2 66.1 66.1 66.2 66.1 66.2 66.1 66.2 66.3 66.4

2007

66.4 66.3 66.2 65.9 66.0 66.0 66.0 65.8 66.0 65.8 66.0 66.0

2008

66.2 66.0 66.1 65.9 66.1 66.1 66.1 66.1 66.0 66.0 65.9 65.8

2009

65.7 65.8 65.6 65.7 65.7 65.7 65.5 65.4 65.1 65.0 65.0 64.6

2010

64.8 64.9 64.9 65.2 64.9 64.6 64.6 64.7 64.6 64.4 64.6 64.3

2011

64.2 64.2 64.2 64.2 64.2 64.0 64.0 64.1 64.2 64.1 64.1 64.0

2012

63.7 63.9 63.8 63.7 63.8 63.8 63.7 63.5 63.6 63.7 63.6 63.6

2013

63.6 63.5 63.3 63.4 63.4 63.5 63.4 63.2 63.2 62.8 63.0 62.8

2014

63.0 63.0 63.2 62.8

Table

Labor Force Participation Rates - Graphically

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Unemployment rate dropped early during recession•But due to decrease in labor force participation rate•Rather than an increase in employment

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2005

5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9

2006

4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4

2007

4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0

2008

5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3

2009

7.8 8.3 8.7 9.0 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9

2010

9.8 9.8 9.9 9.9 9.6 9.4 9.4 9.5 9.5 9.4 9.8 9.3

2011

9.2 9.0 9.0 9.1 9.0 9.1 9.0 9.0 9.0 8.8 8.6 8.5

2012

8.3 8.3 8.2 8.2 8.2 8.2 8.2 8.0 7.8 7.8 7.7 7.9

2013

8.0 7.7 7.5 7.6 7.5 7.5 7.3 7.2 7.2 7.2 7.0 6.7

2014

6.6 6.7 6.6 6.2 6.3 6.1 6.2 6.1 5.9 5.7 5.8 5.6

2015

5.7 5.5 5.5 5.4

Figure

Actual Unemployment rates since 1960

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11

This graph uses annual data on the U.S. unemployment rate to show the percentage of the labor force without a job. The natural rate of unemployment is the normal level of unemployment around which the unemployment rate fluctuates


• Natural rate of unemployment– Normal rate of unemployment – Around which the unemployment rate

fluctuates• Cyclical unemployment

– Deviation of unemployment from its natural rate

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Figure

Labor-force participation rates for men and women since 1950

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13

This figure shows the percentage of adult men and women who are members of the labor force. It shows that over the past several decades, women have entered the labor force, and men have left it.


• Does the unemployment rate measure what we want it to?

• Official unemployment rate– Useful– Imperfect measure of joblessness

• Movements into and out of the labor force– Common– More than one-third of unemployed

• Recent entrants into the labor force

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• Does the unemployment rate…?• Some of those who are out of labor force

– May want to work• Discouraged workers

• Discouraged workers– Individuals who would like to work– Have given up looking for a job

• Particularly in longer recessions

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Table

Alternative measures of labor underutilization

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16

Measure and Description Rate

U-1

U-2

U-3

U-4

U-5

U-6

Persons unemployed 15 weeks or longer, as a percentage of the civilian labor force (includes only very long-term unemployed)Job losers and persons who have completed temporary jobs, as a percentage of the civilian labor force (excludes job leavers)Total unemployed, as a percentage of the civilian labor force (official unemployment rate)Total unemployed, plus discouraged workers, as a percentage of the civilian labor force plus discouraged workersTotal unemployed plus all marginally attached workers, as a percentage of the civilian labor force plus all marginally attached workersTotal unemployed, plus all marginally attached workers, plus total employed part-time for economic reasons, as a percentage of the civilian labor force plus all marginally attached workers

1.6%

2.5

4.8

5.1

5.8

8.9

The table shows various measures of joblessness for the U.S. economy. The data are for February 2008.• Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.• Discouraged workers are marginally attached workers who have given a job-market-related reason for not currently looking for a job.• Persons employed part-time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.


• Unemployment rate– Never falls to zero– Fluctuates around the “natural” (long-term

trend) rate of unemployment– ~5% historically

• Could shift with structural changes in the economy (changes in what the economy produces) and demographics (“ageing of the population)

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• Why are there always some people unemployed?

• Frictional unemployment• Results from the process of matching workers and

jobs

• Structural unemployment– Results because of changes in the number of

jobs available in some labor markets

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Job Search and Frictional Unemployment

• Job search• Process by which workers find appropriate jobs given

their tastes and skills

• Frictional unemployment• Results from the process of matching workers and

jobs – “job search” it takes time

• Why some frictional unemployment is inevitable• Changes in demand for labor among different firms• Changes in composition of demand among industries

or regions (sectoral shifts)

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Structural Unemployment

• Structural unemployment– Results because of changes in the number of jobs available in

some labor markets

• Reasons for structural unemployment– Obsolescence of a single technology will make specific expertise useless. – Increase of the efficiency in an economic sector reduces the number of

required workers. Unskilled laborers are the first to go unemployed, and the most likely to stay so.

– Reduced relative competitiveness of an industry in a country can also lead to structural unemployment. Basic manufacturing in the West has been hit by this. Lower wages in less developed countries have attracted manufacturing away from the West.

– Market inefficiencies can also cause structural unemployment.

• Long term – need to retrain workers 20

Job Search

• Public policy and job search• Reduce time for unemployed to find jobs

– Reduce Natural rate of unemployment• Government programs

– Government-run employment agencies– Public training programs

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Job Search

• Unemployment insurance– Government program– Partially protects workers’ incomes

• When they become unemployed

– Increases frictional unemployment• Without intending to do so

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Minimum-Wage Laws

• Structural unemployment– Results when the number of jobs is

insufficient for the number of workers• Minimum-wage laws

– Can cause unemployment– Forces the wage to remain above the

equilibrium level• Higher quantity of labor supplied• Smaller quantity of labor demanded• Surplus of labor – unemployment

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Figure

Unemployment from a wage above equilibrium level

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In this labor market, the wage at which supply and demand balance is WE. At this equilibrium wage, the quantity of labor supplied and the quantity of labor demanded both equal LE. By contrast, if the wage is forced to remain above the equilibrium level, perhaps because of a minimum-wage law, the quantity of labor supplied rises to LS, and the quantity of labor demanded falls to LD. The resulting surplus of labor, LS – LD, represents unemployment.

Wage

Quantity of Labor 0

Minimum wage

LD LS

Surplus of labor = Unemployment

Labordemand

Laborsupply

LE

WE

Minimum-Wage Laws

• Wages may be kept above equilibrium level– Minimum-wage laws– Unions– Efficiency wages

• If the wage - kept above the equilibrium level – Result: unemployment

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Unions and Collective Bargaining

• Union– Worker association– Bargains with employers over

• Wages, benefits, and working conditions

• The economics of unions– Collective bargaining

• Process: unions and firms agree on the terms of employment

– Strike• Organized withdrawal of labor from a firm by a union

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• The economics of unions• Union - raises the wage above the equilibrium

level– Higher quantity of labor supplied– Smaller quantity of labor demanded– Unemployment– Better off: employed workers (insiders)– Worse off: unemployed (outsiders)

• May stay unemployed• Take jobs in firms that are not unionized

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• The economics of unions• Union - raises the wage above equilibrium

– Supply of labor – increase in industries not unionized• Lower wage

• Workers in unions– Reap the benefit of collective bargaining

• Workers not in unions– Bear some of the cost

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• Are unions good or bad for the economy?• Critics

– Unions - a type of cartel– Allocation of labor

• Inefficient– High union wages reduce employment in unionized

firms below the efficient level

• Inequitable– Some workers benefit at the expense of other workers

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• Are unions good or bad for the economy?• Advocates

– Unions - necessary antidote to the market power of the firms that hire workers• In the absence of a union

– Firm - pay lower wages and offer worse working conditions

– Unions - help firms respond efficiently to workers’ concerns• Keep a happy and productive workforce

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The Theory of Efficiency Wages

• Efficiency wages– Above-equilibrium wages paid by firms to

increase worker productivity• Worker health

– Better paid workers• Eat a more nutritious diet

– Healthier and more productive

• Worker turnover– Firm - can reduce turnover among its workers

• By paying them a high wage31

The Theory of Efficiency Wages

• Worker quality– Firm – pays a high wage

• Attracts a better pool of workers• Increases the quality of its workforce

• Worker effort– High wages – make workers more eager to

keep their jobs• Give workers an incentive to put forward their

best effort

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• Henry Ford - founder of Ford Motor Company– Introduced modern techniques of production– Built cars on assembly lines

• Unskilled workers were taught to perform the same simple tasks over and over again

– Output: Model T Ford

• 1914, Ford - the $5 workday– Twice the going wage– Long lines of job seekers

• Number of workers willing to work > number of workers Ford needed

Henry Ford and the very generous $5-a-day wage

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• Ford’s high-wage policy – efficiency wage– Turnover fell– Absenteeism fell– Productivity rose– Workers – so much more efficient

• Ford’s production costs were lower despite higher wages

– Profitable for the firm– Closely linked to Ford’s use of the assembly line

• Assembly line - highly interdependent workers

Henry Ford and the very generous $5-a-day wage

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chapter unemployment 15. identifying unemployment how is unemployment measured? – usual bls...

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