The labor force includes all persons over age sixteen who are either working for pay or actively seeking paid employment.

People who are not employed or are not actively seeking work are not considered part of the labor force.

The labor-force participation rate is the percentage of the population working or seeking employment.

Total population (275,372,000)

Sick and disabled (7,142,000) Institutionalized (3,628,000)

Other (489,000)

Homemakers (20,343,000)

In school (9,130,000)Retired (29,813,000)

Unemployed(5,655,000)

Civilians employed(135,208,000)

Armed forces (1,423,000)

Out of the labor force (133,086,000) In civilian labor force (142,286,000)

Under age 16 (62,541,000)

As the labor force grows, the production possibilities curve shifts outward.

This outward shift illustrates the increased capacity to produce goods and services given available technology and institutional constraints.

Consumption Goods (units per year)

Inve

stm

ent G

ood

s (u

nits

pe

r ye

ar)

BO

C

A H

GF

D

Labor-force growth increases production possibilities

Unemployment is the inability of labor-force participants to find jobs.

If a person is not employed and is actively seeking work they are counted as unemployed. People not engaging in or actively seeking work are not part of the labor force.

Okun’s Law asserts that 1% more unemployment is estimated to equal 2 percent less output.

U.S. Census Bureau surveys about 60,000 households a month to determine how many people are actually unemployed.

A person is considered unemployed if he or she is not employed and is actively seeking a job.

The unemployment rate is the proportion of the labor force that is unemployed.

How long a person remains unemployed is affected by the nature of the joblessness.◦ Job leavers◦ Job losers◦ Reentrants◦ New entrants

Newentrants 8%

Jobleavers

14%

Job losers44%Reentrants

34%

A discouraged worker is an individual who is not actively seeking employment but would look for or accept a job if one were available.

Discourage workers are not counted as part of the unemployment problem after they give up looking for a job.

Underemployment exists when people seeking full-time paid employment work only part time or are employed at jobs below their capability.

Underemployed workers represent labor resources that are not being fully utilized.

There are four major types of unemployment◦ Seasonal Unemployment◦ Frictional Unemployment◦ Structural Unemployment◦ Cyclical Unemployment

Seasonal unemployment is the unemployment due to seasonal changes in employment or labor supply.

Season unemployment can affect farm workers, Christmastime retail workers, and other jobs without year-round production.

Frictional unemployment is the brief periods of unemployment experienced by people moving between jobs or into the labor market.

Frictional unemployment differs from other unemployment in three ways:

There is an adequate demand for the labor of the frictionally unemployed.

The frictionally unemployed have the skills required for existing jobs.

The job-search period will be relatively short.

Structural unemployment is the unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.

Structural unemployment is the worst for the economy, as workers must learn new skills and develop more training before they can get new employment.

Periods of structural unemployment tend to be longer than the other varieties.

Cyclical unemployment is the unemployment attributable to the lack of job vacancies – i.e., to an inadequate level of aggregate demand.

Usually, the economy will return to a normal level on its own, but in extreme examples (e.g. The great depression), government help is needed to alleviate cyclical unemployment.

Rat

e of

Une

mpl

oym

ent

(Per

cent

)

1910 1920 1930 1940 1950 1960 1970 19800

5

10

15

20

25

1990 2000

Full employment is not the same as zero unemployment.

The natural rate of unemployment is the long-term rate of unemployment determined by structural forces in labor and product markets.

The Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act) states our national goal is a 4% unemployment rate with a required goal of 3% inflation.

Since 1950, unemployment rate has fluctuated from a low of 2.8 percent during the Korean War (1953) to a high of 10.8 percent during the 1981-82 recession.

End of Chapter 6