Lecture 7
UNEMPLOYMENT

1. Measuring unemployment

  • Based on BLS survey of 60,000 households every month

  • Who is counted as employed?

  • Who is counted as unemployed?

    • Person doesn't have a job, and
    • Has actively looked for jobs during previous week, or was temporarily laid off

  • Discouraged workers are not in the labor force

  • Unemployment rate:

      u = 100 x Unemployed/Labor force


2. Types of unemployment

  • Frictional unemployment: Workers between jobs

  • Structural unemployment: Due to changes in technology

  • Cyclical unemployment: Linked to the business cycle

  • Seasonal unemployment: Guess.


3. Full employment

  • Does not mean zero unemployment (WHY?)

  • Potential GDP (also full-employment output)

  • The natural rate of unemployment (u*)


4. Unemployment insurance

  • An automatic stabilizer:
    Unemployment benefits tend to cushion the effects of a recession

  • Effect on job search?


5. Costs of high unemployment

  • Loss in real GDP due to idle resources

  • Actual GDP vs. Potential GDP (or full-employment output)


6. Comparison of labor markets in US and EU

  • Flexible vs rigid labor markets:
    The ease with which employers can fire workers

  • The generosity of the unemployment benefits scheme

Bureau of Labor Statistics

The Bureau of Labor Statistics maintains a FAQ page dealing with labor and employment. Discusses how unemployment is measured, characteristics of the labor force, and seasonal variations.

Unemployment

Seasonally Adjusted

Unemployment Rate:
6.0% in Dec 2002

Change in Unemployment Level:
+82,000 in Dec 2002

Change in Employment Level:
-273,000 in Dec 2002

Change in Civilian Labor Force Level:
-191,000 in Dec 2002

Civilian Labor Force Participation Rate:
66.3% in Dec 2002

Employment-Population Ratio:
62.3% in Dec 2002

Annual Averages

Unemployment Rate:
5.8% for 2002

Unemployment Level:
8,266,000 for 2002
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