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Labor Force Participation Rate Consist of the proportion of legal employable individuals (16 years and above)

who (1) are engage in working for a business (or own their businesses) and getting paid in currency in exchange of producing commodities and (or) services for the business

Individuals without a job and searching for employment in the immediate preceding four weeks

individuals who are not engaged in any form of work and individuals who are not in the searching for employment category are not included in the labor force (Mankiw, 2014, p. 587)

To calculate labor force participation rate, Mankiw (2014) stated,

“Labor-force participation rate = Labor Force x 100” (p. 587). Adult population

 

Change in Labor Force Participation since 2008

The graph shows a continuous decline in labor participation ratio after 2008. On the average, the ratio was 66.0 in 2008, 65.4 in 2009, 64.7 in 2010, 64.1 in 2011, 63.7 in 2012, 63.3 in 2013, and 52.4 for the ten months’ average in 2014. The change indicates that (1) labor utilization continues to be low, (2) there would be less consumption of goods and services because eligible to be employed but cannot participate in the labor force individuals (unemployed and searching in the immediate four weeks and cannot find jobs) would be restricted to spending little or no money in their possessions, (3) recession period that forces some businesses to close, (4) imbalance in the circular flow of the economy, and (5) ultimate unhealthy state of the economy (Simpson, 2011, p. 1).

Calculation of Unemployment Rate

Unemployment rate is measured by dividing the number of unemployed by the labor force (Khan, 2012). The labor force comprises of unemployed and the employed. Hypothetical example: If there are 100 people in the labor force, 50 people are employed and 50 unemployed,

Employment rate would be:

50 100 = 50%

Out of the 50 unemployed, assuming 30 people stop looking for work after four weeks because of discouragement from not obtaining jobs. Therefore, the calculation would now be 30 marginally attached workers subtracted from the initial 50 who were unemployed, divided by (50 who were employed minus 30 marginally attached workers):

Employment rate: 20 70 = 28.6%

Although it seems like the employment rate has greatly reduced in this scenario, it has its flaw because it does not include where the 30 marginally attached workers belongs in the standard calculation and report that is broadcasted in the media.

Discouraged Workers The Bureau of Labor and Statistics (2014) stated,

“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. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data” (Economic News Release, p. 1).

The graph shows continuous increase ofdiscouraged workerssince 2008.

Frictional Unemployment

Frictional unemployment transpire when there is imminent time lags for employable

individuals to obtain unique employment that aligns with their preferences and competencies

in the labor market (Mankiw, 2014, p. 593). For example, a recent university graduate may not

find a job that aligns with his or her competency right after graduation. In addition, the period

it takes for a Phd scholar to secure a proper job (job that aligns with his or her specialty)

instead of working as a hotel waiter or waitress is frictional unemployment.

Structural Unemployment Grimsley (2014) stated,

“Structural unemployment exists when there are jobs available and people willing to work, but there are not a sufficient number of people qualified to fill the vacant jobs. In other words, employers can neither find enough workers nor can workers find jobs for which they are qualified. Structural unemployment often occurs when the demand for specific types of labor changes as the economy changes” (para. 3).

For example, technological advancement has created the existence of self-serve cash registers that have replaced individual cashiers in most stores (Kroger and Wal-Mart for example). This shift in replacing individual cashiers with machines results in the decline in the demand for individual cashiers in the markets where self-serve cash registers are dominant

Cyclical Unemployment Cyclical unemployment occurs when businesses are going through

downturns in response to business cycle, and it is usually short-term (Thoma,2014, p. 1). For example, manufacturers of winter coats would have less demand for the product during summer. Therefore, the businesses would need less workers during summer season, which would lead to cyclical unemployment.

Unemployment Insurance The U.S. Department of Labor administers unemployment

insurance payment benefits to qualified employees who evolve into being unemployed by non-self-indiscretion, and conform to other specific qualification fulfillments (Mankiw, 2014, p. 595). The benefits are deterrents to a job seeker because it is a form of incentive that inhibits a job seeker to commit himself or herself in looking for a job or accept unappealing job (Mankiw, 2014, p. 596). In the U.S., normal unemployment benefits lasts for 26 weeks (Mankiw, 2014, p. 596).

Effect of Unions on the Economy and Employment

RatioUnions consists of associations that negotiate with businesses in the interest of union associates in terms of

(1) improving work environment, (2) benefits and (3) salaries (Mankiw, 2014, p. 599). In general, existence of

unions hurts the total economy and employment ratio. While unions push for higher wages above the

equilibrium, businesses are not willing to pay, and this causes union associates to be out of work.

Consequently, there exists unemployed workers who add to the vague notion of report in decrease in

unemployment because the associates do not factor in the standard calculation of employment rate. In

addition, the associates create an economic environment of surplus workers with no demand for their skills

because businesses are not willing to pay wages above the equilibrium. Therefore, the circular flow of the

economy becomes imbalanced.

ReferencesBureau of Labor and Statistics. (2014). Economic News Release. Retrieved from

http://www.bls.gov/news.release/empsit.t15.htm

Grimsley, S. (2014). Structural Unemployment: Definition, Causes & Examples. Retrieved from

http://education-portal.com/academy/lesson/structural-unemployment-definition-

causes-examples.html#lesson

http://education-Mankiw, N. Gregory. Principles of Economics, 7th Edition. Cengage

Learning, 2014. VitalBook File

Simpson, S., D. (2011). The Cost Of Unemployment To The Economy. Retrieved from

http://www.Investopedia.com/financial-edge/0811/the-cost-of-unemployment-to -

the-economy.aspx