WAGES & UNEMPLOYMENT PART II

Chapter 6

Collecting Employment Statistics How do we collect these Statistics?

Bureau of Labor Statistics surveys about 60,000 randomly selected households each month.

Each individual over 16 either Employed, Unemployed, or Out of the Labor

Force

Civilian Labor Force

The Civilian Labor Force is the total number of employed and unemployed people in the economy

Civilian Labor Force

Civilian Unemployment Rate The civilian unemployment rate is the

percentage of those in the civilian labor force who are not employed, but are either looking for employment or have looked in the last four weeks.

Civilian Unemployment Rate Continued

civilian unemployment rate =

civilian labor force – employed X 100%

civilian labor force

Unemployed

Civilian Unemployment Rate

Labor Force Participation Rate The labor force participation rate is the

percentage of the working age population in the labor force.

The labor force includes both those working and those looking for work.

Labor Force Participation Rate

Duration

The length of an unemployment spell is called the duration of unemployment. The unemployment spell begins when the worker becomes unemployed and ends when the worker becomes employed or leaves the labor force.

Duration

Requirements to be included in the Civilian Labor Force

1) A civilian2) Over 16 years of age3) Employed—working4) Unemployed—looking for work or have

looked for work in the last four weeks

Problems with Measured Unemployment

1) Involuntary part-time employment2) Discouraged workers3) Underemployment4) False information

1) Involuntary Part-time Employment Part time employment—part time workers are

counted as being fully employed. However, many part time workers wish to work full time, but can’t find suitable full time work or are on short hours for a temporary period.

Involuntary part time workers who wish to work full time are not “fully” employed. However, they are counted as fully employed.

Result: The level of employment is overstated and the unemployment rate is understated.

2) Discouraged Workers

Discouraged workers—individuals who, after unsuccessfully seeking employment, become discouraged and drop out of the labor force. These people would accept employment if it were offered, but have simply given up looking. Four (4) weeks after they stop looking for work, they drop out of the official labor force.

2) Discouraged Workers Continued Result: The level of unemployment and

the unemployment rate are understated.

There are many more discouraged workers during recession than expansion.

January 2008

The official unemployment rate in January 2008 was 4.9%.

According to Bureau of Labor Statistics, if involuntary part-time workers and discouraged workers were counted as unemployed, the unemployment rate would have been 9%.

3) Underemployment

Underemployment—resources inefficiently used because individuals are not employed in “optimal” jobs.

Result: The level of unemployment and the unemployment rate are understated.

4) False Information

People claim to be looking for work, but who are not looking for work. These people are counted as being unemployed, even though they are not seeking employment.

Result: The level of unemployment and

the unemployment rate are overstated. Reasons: Unemployment compensation

or welfare benefits may depend on “actively” seeking employment.

4) False Information

People claim to be unemployed, but are actually working.

Result: Overstates the level of unemployment and the unemployment rate.

Reasons: Underground Economy

1) Person who is employed, but claims to be unemployed to avoid taxes. The job itself is in some legal activity.

2) Person who is employed in some illegal profession.

Alternative Measures?

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force

U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force

Alternative Measures?

U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force

U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force

NOTE: Persons marginally attached to the labor force are those 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 past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work

Alternative Measures?

Unemployment

Measures (Seasonally Adjusted)

Jan-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

U1 5.5 5.3 5.1 5.0 5.0 4.9

U2 5.5 5.2 5.1 4.9 4.9 4.7

U3 9.1 9.0 8.9 8.7 8.5 8.3

U4 9.7 9.6 9.5 9.3 9.1 8.9

U5 10.7 10.5 10.4 10.2 10.0 9.9

U6 16.1 16.4 16.0 15.6 15.2 15.1

U3 Unemployment Rate U6 Unemployment Rate

16.7% National

9.6% National

21.1 Michigan

13.1% Michigan

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

U6 – Total unemployment, plus all marginally attached

workers, plus total employed part time for economic reasons.

|||||

U3 – Total unemployed as a % of the civilian labor force.

Alternative Measures?

Geography of a Recession

http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html

Types of Unemployment

1) Frictional2) Cyclical3) Structural4) Seasonal

Frictional Unemployment

Frictional unemployment—the short-term unemployment associated with the process of matching workers with jobs. Frictionally unemployed workers are not unemployed in the long term.

Cyclical Unemployment

Cyclical unemployment—the extra unemployment that occurs during periods of recession.

Structural Unemployment Structural unemployment—the long-

term and chronic unemployment that exists even when the economy is producing at a “normal” rate. These individuals are unemployed for the long term.

Structural Unemployment: Reasons Lack of skills Language barriers Discrimination Economic change that creates a long-

term mismatch between skills and available jobs.

Seasonal Unemployment

Seasonal unemployment—some occupations require workers during only part of the year.

Impediments To Employment Minimum Wage Laws Labor Unions Unemployment Insurance Others

Minimum Wage Laws

Labor Unions

Labor union benefits Reduced worker exploitation Support progressive labor legislation Increase productivity Promote democracy in the workplace

Labor union costs Introduces inefficiency into competitive

markets May keep companies from competing

globally Increase labor supply in non-union sector Decreases wages for non-union workers

Unemployment Insurance

Government transfer payments to help unemployed workers. Helps to reduce the costs of unemployment May give the unemployed an incentive to

search longer and less intensely

To work efficiently, unemployment benefits should Be for a limited time Be Less than the income received when

working

Unemployment Spell Vs Duration Unemployment Spell: The period

during which an individual is continuously unemployed.

Duration of unemployment: The length of the unemployment spell.

KALAMAZOO - PORTAGE (Kalamazoo, Van Buren counties)

Nov 2011 Dec 2011

Civilian Labor Force 166,100 164,100 Total Employment 154,700 151,500 Unemployment 11,400 12,700 Rate (percent) 6.9 7.7

Unemployment Rates for States Monthly RankingsSeasonally Adjusted Dec. 2011

Ranks: 1. North Dakota - 3.3% 2. Nebraska - 4.1% …. 41. Michigan - 9.3 % … 50. California - 11.1% 51. Nevada - 12.6%

Michigan Unemployment Rate(Seasonally Adjusted)

Question

Data for an economy shows that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working-age population in this economy?

333 million 1.20 billion 500 million 800 million

Labor force Defn:

Labour force is a region's combined civilian workforce, including both the employed and unemployed.

The labor force of a country consists of : everyone of working age (above age 16

and below retirement around 65) who are participating workers, that is people actively employed or seeking employment.

Labor force participation

The labor force participation rate is the percentage of the working age population in the labor force.

The labor force includes both those working and those looking for work.

People not part of the labor force People not counted include: students, retired people, stay-at-home parents, people in prisons or similar institutions, people employed in jobs with

unreported income, Discouraged workers who cannot find

work.