UnemploymentMeasurement & Analysis

2015 Unemployment Rate

Great Recession

10.2%

5.1%On the surface, the

unemployment number looks good, but……

How Is Unemployment Measured?

• The unemployment rate is calculated as the % of the labor force that is currently unemployed

Unemployment Rate = # unemployed

Labor force100

Labor Force = # people over 16 with jobs + # people looking for jobs

Calculating Unemployment

Adult Population(251 million)

Labor Force(157 million)

Employed(149.0 million)

Not in labor force(94.0 million)

Unemployed (8.0 million)

8.0/157 =

= 5.1%

# Unemployed----------------------- Labor Force

Why go to College?

• Less Than High School: 7.7%

• High School Graduate: 5.5%

• Less Than a Bachelor’s 4.4%

• College Graduate (or higher) 2.5%

Unemployment by education level in 2015 when overall unemployment = 5.1%

4-Types of Unemployment

• Structural– Unemployed skills do not match current demand for labor

• Cyclical– Related to business cycle-----too low a level of GDP growth – occurs during recessions (at trough) or periods of slow GDP growth

• Frictional– Temporarily between Jobs or new to labor force

• Seasonal– Out of work based on time of year

Gov’t policy is focused on Structural & Cyclical

Natural Rate of Unemployment

• Definition: Unemployment that does not go away in long run– Also called “Full Employment” (know this!)

– Equals the rate without cyclical unemployment – Also, total of frictional & structural (seasonal is adjusted out of number…)

Economists debate actual % levelWe will use 4.5% for this classFull employment = economy at full potential

4-Types ofUnemployment

Structural

FrictionalSeasonal

Cyclical

Unemployment Worksheet

Low Unemployment & Inflation

As unemployment rate fallsBelow full employment

Business competes for workersWages begin to increase =>

The cost of doing business risesLeads to “cost push” inflation

Calculating Full Employment

• Economists debate actual level– Was considered to be 5-6% before the 1990’s

– 2006 considered 4-5% We will use4.5% for

Natural rate(Full Employment)

Critical Thinking:

Why is it lower today? Many Reasons:

• Improved Job. Info on internet• Temporary Work Agencies• New Welfare Laws

Labor Force Participation: Men versus Women

100

80

60

40

20

01950 1955 1960 1965 1970 1975 1980 1985 1990 2000

Labor-ForceParticipation

Rate (in percent)

Women

Men

1995 2005