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Labor Force Statistics

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Title: Labor Force Statistics


1
Labor Force Statistics
  • An employed person is a person over age 16 who

Is not in the military, in prison, or in some
other institution
AND
Worked at least one hour in the past week as a
paid employee OR Worked at least one hour in the
past week for his/her own farm or
business OR Worked at least 15 hours as an unpaid
employee of a family business OR Did not work in
the previous week but had a job from which he was
absent due to vacation, illness, bad weather,
childcare problems, family leave,
labor-management dispute, job training, or other
family or personal reasons
2
Labor Force Statistics
  • An unemployed person is a person over age 16 who

Was not employed during the past week
AND
Was available to work during the past week OR Was
temporarily ill but would otherwise have been
available to work
AND
Made specific efforts to find employment sometime
in the past 4 weeks OR Was waiting to be recalled
from a job from which he/she had been laid off
3
Labor Force Statistics
  • More definitions
  • Employment is equal to the number of employed
    persons.
  • Unemployment is equal to the number of unemployed
    persons.
  • The labor force is equal to the number of persons
    who are either employed or unemployed
  • The unemployment rate is equal to employment
    divided by the labor force

Labor force employment unemployment
Unemployment Rate Unemployment x 100
Unemployment Rate Labor Force x 100
Unemployment x 100
Employment Unemployment x 100
4
Labor Force Statistics
  • More definitions
  • A person who is not in the labor force (NILF) is
    a person over age 16 who is not in the military,
    not in prison or some other institution, and who
    is neither employed nor unemployed
  • Ex retired individuals, disabled individuals are
    NILF
  • A discouraged worker is a person who is NILF but
    wants a job, is available for a job, and has
    either worked or looked for work in the past 12
    months, but is no longer looking for work because
    he/she believes that there are no jobs available
    for him or her
  • The civilian noninstitutional population (CNP16)
    is equal to the number of persons over age 16 who
    are not in the military, in prison, or in some
    other institution

Civilian noninstitutional population labor
force persons NILF
5
Labor Force Statistics
  • More definitions
  • The labor force participation rate is the labor
    force divided by the civilian noninstitutional
    population
  • All of the above definitions are technical terms
    set by the Bureau of Labor Statistics (BLS) of
    the U.S. Department of Labor
  • Values of the above variables can be found at
    http//www.bls.gov

Labor force participation rate Labor force x 100
Labor force participation rate Civilian noninstitutional population x 100
Labor force x 100
Labor force persons NILF x 100
6
Unemployment Rate, 1947-2001
Source Bureau of Labor Statistics
7
LF Participation Rate, 1947-2001
Source Bureau of Labor Statistics
8
Labor Force Statistics
  • Estimating labor force statistics
  • The Current Population Survey (CPS) is a survey
    conducted by the BLS and by the Bureau of the
    Census
  • Calls or visits 50,000 households each month,
    interviews 140,000 individuals a month as a
    result
  • Labor force questions are asked of as many
    individuals in the survey over the age of 16 as
    possible
  • The responses of the approx. 110,000 individuals
    over age 16 surveyed are used by the BLS to
    estimate the unemployment rate, labor force
    participation rate, etc. of all 270,000,000
    Americans
  • Unemployment rate believed to be correct within
    0.2
  • CPS data available to public at
    http//ferret.bls.census.gov

9
Kinds of Unemployment
  • Reasons for unemployment
  • Frictional unemployment is the number of people
    who are unemployed not because they cannot find
    any job at all, but rather because they are
    passing up available jobs because they believe a
    longer job search will result in their finding a
    better job later on
  • Sometimes called search unemployment
  • Exists because of imperfect information in labor
    markets, ideal matching of job seekers with job
    vacancies is not instantaneous
  • The frictionally unemployed are voluntarily
    unemployed, believe that a lengthier period of
    unemployment will make them better off in the
    long run because it allows lengthier job search
  • Considered a healthy kind of unemployment for
    an economy

10
Kinds of Unemployment
  • Reasons for unemployment
  • Structural unemployment is the number of people
    who are unemployed because of changes in the
    structure of the economy
  • Ex. If industries shift their operations from
    the North to the South, jobs decrease in the
    North, unemployment increases in the North
    regional imbalance in labor markets
  • Ex. If technology improves and production shifts
    from a low-technology, low-skill environment to a
    high-technology, high-skill environment,
    unemployment increases among low-skill workers
    occupational imbalance in labor markets
  • Also considered a healthy kind of unemployment
    because it is a side effect of often positive
    changes in the economy

11
Kinds of Unemployment
  • Reasons for unemployment
  • Cyclical unemployment is the no. of people who
    are unemployed for reasons other than frictional
    or structural unemployment
  • Cyclical Unemp. Total Unemp. Frictional and
    Structural Unemp.
  • Often attributed to a failure of aggregate
    product demand people, firms and the government
    are not buying goods and services, firms do not
    need workers to produce goods and services and do
    not offer jobs to all willing and available job
    applicants
  • Sometimes called demand-deficit unemployment
  • Not considered healthy for an economy the
    cyclically unemployed are people willing and able
    to work who are idle for no reason that benefits
    either the unemployed person or the economy as a
    whole

12
Kinds of Unemployment
  • The natural rate of unemployment
  • The natural rate of unemployment is the
    unemployment rate that would prevail if all
    unemployment was frictional or structural
  • Cannot be measured precisely but educated guesses
    can be made
  • Was approximately 4 during the 1950s and
    1960s, 6 during the 1970s and 1980s, and back
    to 4 for the 1990s and 2000s
  • Long-term changes in the unemployment rate are
    attributable to changes in frictional and
    structural unemployment, and consequently to
    changes in the natural rate of unemployment
  • Short-term changes in the unemployment rate are
    attributable to changes in cyclical unemployment
    natural rate of unemployment stays the same
    through short-term changes in unemployment rate

13
Kinds of Unemployment
  • The natural rate of unemployment
  • Ex. Increase in average yearly unemployment rate
    from 4.8 over 1960-69 to 6.2 over 1970-79
    likely due to change in frictional and structural
    unemployment natural rate of unemployment likely
    lower in 1960-69 (approx. 4) than in 1970-79
    (approx. 5.5)
  • Note natural rate of unemployment in a decade not
    the same as average rate of unemployment in a
    decade
  • Ex. Increase in unemployment rate from 5.6 in
    1974 to 8.5 in 1975 likely due to change in
    cyclical unemployment natural rate of
    unemployment likely same in 1974 as in 1975
    (approx. 5.5)
  • When cyclical unemployment rises for more than ½
    year, some say economy is in recession rest of
    time, economy is in expansion

14
Unemployment Rate, 1947-2001
  • Trend change in unemployment (red line) change
    in frictional and structural unemployment
  • Fluctuations around that trend change in
    cyclical unemployment
  • When deviation from trend is great, so is
    cyclical unemp.

Source Bureau of Labor Statistics
15
Unemployment Rate, 1947-2001
  • Ex. In 1982, unemployment much greater than
    trend, cyclical unemployment great
  • Ex. In 1988, unemployment much less than trend,
    cyclical unemployment slight

1982
1988
Source Bureau of Labor Statistics
16
Kinds of Unemployment
  • Controlling cyclical unemployment
  • Cyclical unemployment can be reduced with
    expansionary fiscal policy (increasing government
    spending or cutting taxes) or expansionary
    monetary policy (reducing interest rates by
    manipulating the money supply) see any macro
    text for details
  • Cost of reducing cyclical unemployment with
    expansionary fiscal or monetary policy is higher
    inflation rate
  • Expansionary fiscal or monetary policy pursued if
    enjoying lower unemployment rate is worth
    tolerating higher inflation rate
  • Expansionary fiscal or monetary policy wisest
    when unemployment is unusually high (gt7) and
    inflation is low (lt3)

17
Kinds of Unemployment
  • Controlling cyclical unemployment
  • Cyclical unemployment is usually increased by
    contractionary fiscal policy (reducing government
    spending or increasing taxes) or contractionary
    monetary policy (increasing interest rates by
    manipulating the money supply) see any macro
    text for details
  • Value of increasing cyclical unemployment with
    contractionary fiscal or monetary policy is lower
    inflation rate
  • Contractionary fiscal or monetary policy pursued
    if enjoying lower inflation rate is worth
    tolerating higher unemployment rate
  • Contractionary fiscal or monetary policy wisest
    when unemployment is low (lt5) and inflation is
    unusually high (gt6)
  • Fiscal, monetary policy trade-off between
    inflation, unemployment

18
Unemployment Insurance (UI)
  • Relieving unemployment
  • All 50 states have unemployment insurance (UI)
    programs designed to provide relief for
    unemployed individuals
  • UI makes regular payments to unemployed people
    equal to a percentage of what they earned when
    they were employed
  • The more you earned when you were employed, the
    greater the monthly UI payments you receive when
    you are unemployed
  • Unemployed people only qualify for UI if they
    had, prior to their unemployment, been employed
    for a reasonable length of time
  • Limits on length of time unemployed people can
    receive UI, size of periodic UI payments
    unemployed people can receive, total UI payment
    people can receive over entire unemployment spell

19
Unemployment Insurance
  • Michigan UI program
  • Michigan UI recipients receive weekly UI benefit
    of approx. 50 of what they earned in a typical
    week when they were employed
  • Ex. UI recipient who earned 300/week in wages
    when employed receives approx. 150/week in
    benefits when unemployed
  • Ex. UI recipient who earned 600/week in wages
    when employed receives approx. 300/week in
    benefits when unemployed
  • Maximum weekly UI benefit is 300
  • Ex. UI recipient who earned 900/week in wages
    when employed receives 300/week in benefits when
    unemployed
  • Only unemployed people who had worked for pay for
    approx. 50 of previous year can collect benefits

20
Unemployment Insurance
  • Michigan UI program
  • UI benefits over entire spell of unemployment
    cannot exceed approx. 40 of what UI recipient
    earned while employed over previous year
  • Ex. UI recipient who earned 6,000 total in
    previous year cannot receive more than 2,400 in
    UI benefits total while unemployed
  • UI recipients cannot receive UI benefits for more
    than 26 weeks
  • Above description of Michigans UI program
    heavily stylized actual laws and rules regarding
    UI benefits in Michigan more complicated than
    above, hence the approximatelys
  • UI benefits, like wages, subject to federal
    income tax since 1979

21
Unemployment Insurance
  • Unemployment Insurance and Unemployment
  • Does the generosity of UI benefits reduce the
    incentive of the unemployed to take jobs and
    become employed again?
  • Idea behind above question UI benefits may make
    unemployment more tolerable, may make unemployed
    people more willing to tolerate long spells of
    unemployment, and may make unemployed people more
    willing to pass up available jobs and stay
    unemployed in hopes that an even better job will
    come around
  • I.e. If UI benefits are reduced, do the
    unemployed take jobs sooner? Does the average
    spell of unemployment become shorter?
  • Taxing of UI benefits starting in 1979 offers
    some evidence about the answer to this question

22
Unemployment Insurance
  • Unemployment Insurance and Unemployment
  • When UI benefits first made subject to federal
    income tax in 1979, the tax only applied to
    people with total yearly adjusted gross incomes
    (including wages and UI benefits) of 20,000 or
    more
  • Consequently, in 1979, unemployed individuals
    with total incomes greater than 20,000
    experienced a reduction in UI benefits due to tax
    while those with total incomes of less than
    20,000 did not
  • Natural experiment Did the unemployment spells
    of people whose UI benefits were reduced by the
    tax (those w/incomes gt 20K) become shorter
    relative to unemployment spells of people whose
    UI benefits werent taxed at all (those w/incomes
    lt 20K)?
  • If yes, then UI benefits probably do lengthen
    unemployment spells

23
Unemployment Insurance
  • Unemployment Insurance and Unemployment
  • Gary Solon (U. of Michigan) analyzed U.S. DoL
    data about UI recipients in Georgia in 1978
    (before UI benefits were taxed) and in 1979
    (after UI benefits were taxed for some but not
    all)
  • Found that unemployment spells of UI recipients
    whose UI benefits were taxed become shorter
    relative to unemployment spells of UI recipients
    whose benefits were not taxed

Taxation of UI benefits Taxation of UI benefits Avg. unemployment spell Avg. unemployment spell
1978 1979 1978 1979
UI recipients, income gt 20K Untaxed Taxed 10.8 weeks 8.4 weeks
UI recipients, income lt 20K Untaxed Untaxed 8.7 weeks 8.7 weeks
Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985) Source G. Solon, Work Incentive Effects of Taxing Unemployment Benefits, Econometrica 532 (March 1985)
24
Unemployment Insurance
  • Unemployment Insurance and Unemployment
  • Solons results imply that reducing the
    generosity of UI benefits has advantage of
    increasing the incentive of the unemployed to
    become employed sooner, probably because lower UI
    benefits makes unemployment less tolerable,
    employment more desirable
  • But reducing the generosity of UI benefits also
    has the disadvantage of lowering the quality of
    life of the unemployed with less benefits,
    unemployed less able to pay for food, rent, etc.
  • Similarly, increasing generosity of UI benefits
    has the advantage of improving the quality of
    life of the unemployed but also the disadvantage
    of reducing their incentive to become employed
  • UI policy trade-off between work disincentive and
    quality of life
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