15:Employment and Unemployment

1
15Employment and Unemployment

• What are the unemployment rate, the labor force
  participation rate, and other labor market
  measures?
• What are the sources and duration of
  unemployment?
• What is full employment?
• How are employment and wage rates determined by
  supply and demand?

2
Vital Signs

• The monthly unemployment report is treated as a
  critical measure of the health of the economy.
• To understand the importance of the unemployment
  rate, we need to know how it is measured and
  whether it is reliable.

3
Employment and WagesWhy do we care??

• Real GDP depends on
• the quantities of labor and capital employed
• entrepreneurship
• the state of technology

4
Population Survey

• Every month, the U.S. Census Bureau conducts the
  Current Population Survey.
• This survey covers 60,000 households and is used
  to estimate
• the size of the working age population
• the number of people employed
• the number of people unemployed

5
(No Transcript)
6
Population Categories

• The working-age population is the total number of
  people 16 years and older who are not in jail,
  hospital, or some other form of institutional
  care.
• The working-age population is divided into two
  groups those in the labor force and those not
  in the labor force.

7
The Labor Force

• The labor force is made up of two groups the
  employed and the unemployed.
• The number of people in the labor force is the
  sum of the number employed and the number
  unemployed.

8
Who Is Employed?

• To be counted as employed, a person must have
  either a full-time or part-time job.
• Those with part-time jobs are counted as employed
  even if they would accept full-time employment if
  it was offered.

9
Who Is Unemployed?

• To be counted as unemployed, a person must be
  available for work and be in one of three
  categories
• Without work, but has made specific efforts to
  find work during the previous four weeks
• Waiting to be called back to a job from which he
  or she has been laid off
• Waiting to start a new job within the next 30
  days.

10
Labor Force Reallocation
LS80
Real wage rate (1992 dollars per hour)
Services
10.00
LD80
18
30
Labor (millions of people)
11
Full Employment

• Full employment occurs when the unemployment rate
  equals the natural rate of unemployment.
• The unemployment rate will not be zero at full
  employment because there will still be frictional
  and structural unemployment.

12
(No Transcript)
13
Explaining Employmentand Wage Rates

• Demand and Supply in the Labor Market
• The labor demand curve shows the quantity of
  labor that firms plan to hire at each possible
  real wage rate.
• Firms attempt to maximize profits

14
Explaining Employmentand Wage Rates

• Demand and Supply in the Labor Market
• The labor supply curve shows the quantity of
  labor that households plan to supply at each
  possible real wage rate.
• Households strive to use their scarce time in the
  most efficient way

15
The Labor Market
16
Real wage rate (1992 dollars per hour)
15
14
0
215
Labor (billions of hours per year)
16
The Labor Market
16
Real wage rate (1992 dollars per hour)
15
14
LD
0
215
Labor (billions of hours per year)
17
The Labor Market
LS
16
Real wage rate (1992 dollars per hour)
15
14
LD
0
215
Labor (billions of hours per year)
18
The Labor Market
LS
16
Real wage rate (1992 dollars per hour)
15
14
LD
0
215
Labor (billions of hours per year)
19
The Labor Market
LS
Labor surplus
16
Real wage rate (1992 dollars per hour)
15
Full employment
14
LD
Labor shortage
0
215
Labor (billions of hours per year)
20
Explaining Employmentand Wage Rates

• The Trends in Employment and Wage Rates
• Since 1960, aggregate hours has increased from
  125 billion to 218 billion in 1996
• Real wages increased from 11 an hour to 15 an
  hour
• Technology has made workers more productive
• The demand for labor has increased as has the
  population

21
Explaining Labor Market Trends
LS60
15.00
11.00
Real wage rate (1992 dollars per hour)
LD60
125
218
300
Labor (billions of hours per year)
22
Explaining Labor Market Trends
LS60
15.00
11.00
Real wage rate (1992 dollars per hour)
LD96
LD60
125
218
300
Labor (billions of hours per year)
23
Explaining Labor Market Trends
LS96
LS60
15.00
11.00
Real wage rate (1992 dollars per hour)
LD96
LD60
125
218
300
Labor (billions of hours per year)
24
Explaining Labor Market Trends
LS96
LS60
15.00
11.00
Real wage rate (1992 dollars per hour)
LD96
LD60
125
218
300
Labor (billions of hours per year)
25
Explaining Employmentand Wage Rates

• Changes in the Distribution of Jobs and Wage
  Rates
• Wage rates of manufacturing nonsupervisory
  workers has decreased

26
Labor Force Reallocation
LSM
12.60
Real wage rate (1992 dollars per hour)
Manufacturing
LD80
18
20
30
Labor (millions of people)
27
Labor Force Reallocation
LSM
12.60
11.80
Real wage rate (1992 dollars per hour)
Manufacturing
LD80
LD96
18
20
30
Labor (millions of people)