Unit 5: Unemployment
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Identifying Unemployment
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How Is Unemployment Measured?
• Unemployment statistics are produced by Bureau of Labor Statistics
(BLS), in the U.S. Department of Labor
• Based on a monthly survey of 60,000 households: Current
Population Survey
• Based on “adult population” (16 yrs. or older)
• BLS divides population into 3 groups
• Employed
• Unemployed
• Not in the labor force
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Employed
• Full-time and part-time workers
• Paid employees, self-employed, and unpaid workers in a family
business, full-time and part-time
• Worked without pay in family member’s business
• Temporarily absent because of vacation, illness, bad weather, or
similar reasons
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Unemployed
• People not working, are available for work, and have looked for work
during previous 4 weeks
• Those waiting to be recalled to a job after a temporary layoff
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Not in the Labor Force
• Those not employed and not unemployed
• Full-time students
• Homemakers
• Retirees
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Unemployment Rate
• Labor force*
• Total number of workers, including both the employed and
unemployed
• Unemployment rate*
• Percentage of the labor force that is unemployed
Number of unemployed
Unemployment rate = 100
Labor force
*Words accompanied by an asterisk are key terms from the chapter.
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Labor-Force Participation Rate
• Labor-force participation rate*
• Percentage of the adult population that is in the labor force
• Computed for both the entire adult population and specific groups
Number of unemployed
Unemployment rate = 100
Labor force
*Words accompanied by an asterisk are key terms from the chapter.
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Active Learning 1: Calculate Labor Force
Statistics
Compute the labor force, unemployment-rate, adult population, and
labor force participation rate using the following data
Adult population of the U.S. by group, Feb 2023
Number of employed 159.713 million
Number of unemployed 6.465 million
Not in labor force 99.934 million
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Figure 1 The Breakdown of the Population in
December 2021
The Bureau of Labor
Statistics divides the adult
population into three
categories: employed,
unemployed, and not in
the labor force.
Source: Bureau of Labor Statistics.
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Unemployment
• Natural rate of unemployment*
• Normal rate of unemployment around which the unemployment rate
fluctuates
• Cyclical unemployment*
• Deviation of unemployment from its natural rate
• Associated with short-run fluctuations in economic activity
*Words accompanied by an asterisk are key terms from the chapter.
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Does the Unemployment Rate Measure
What We Want It to Measure?
• The unemployment rate
• Not a perfect indicator of joblessness or the health of the labor
market
• It excludes discouraged workers
• It does not distinguish between full-time and part-time work, or
people working part time because full-time jobs not available
• Some people misreport their work status
• Still a very useful barometer of the labor market & economy
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Discouraged Workers
• Discouraged workers*
• Individuals who would like to work but have given up looking for a
job
• Some of those who report being unemployed may not be trying hard to
find a job
• Want to qualify for a government help
• Working but paid “under the table”
*Words accompanied by an asterisk are key terms from the chapter.
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Active Learning 2: Limitations of the
Unemployment Rate
• In each of the following, what happens to the unemployment rate?
Does the unemployment rate give an accurate impression of what’s
happening in the labor market?
A. Hailey lost her job and begins looking for a new one
B. Josiah, a steelworker who has been out of work since his mill
closed last year, becomes discouraged and gives up looking for
work
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Why Are There Always Some People
Unemployed?
• Frictional unemployment*
• Unemployment that results because it takes time for workers to
search for the jobs that best suit their tastes and skills
• Short-term for most workers
• Structural unemployment*
• Unemployment that results because the number of jobs available in
some labor markets is insufficient to provide a job for everyone who
wants one
• Usually, longer-term
*Words accompanied by an asterisk are key terms from the chapter.
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2
Minimum-Wage Laws
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Minimum-Wage
• The minimum wage (if binding)
• Matters most for those with low levels of skill and experience, such
as teenagers
• Causes structural unemployment
• Quantity of labor supplied exceeds the quantity of labor demanded
• Workers are unemployed because they are waiting for jobs to open up
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Figure 4 Unemployment from a Wage above
the Equilibrium Level
• In this labor market, supply and demand
are balanced at the wage WE.
• At this equilibrium wage, the quantity of
labor supplied and the quantity of labor
demanded both equal LE.
• But if the wage is forced to remain
above the equilibrium level, perhaps
because of a minimum-wage law, the
quantity of labor supplied rises to LS,
and the quantity of labor demanded
falls to LD.
• The resulting surplus of labor, LS – LD,
represents unemployment.
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3
Unions and Collective Bargaining
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Unions
• Union*
• A worker association that bargains with employers over wages,
benefits, and working conditions
• Exert their market power to negotiate higher wages for workers
• Less than 11% of U.S. workers today belong to unions
• About 33% in the 1940s and 1950s
*Words accompanied by an asterisk are key terms from the chapter.
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The Economics of Unions (1 of 2)
• Collective bargaining*
• The process by which unions and firms agree on the terms of
employment
• Strike*
• The organized withdrawal of labor from a firm by a union
• Union workers
• Earn 10-20% more than similar workers who do not belong to unions
*Words accompanied by an asterisk are key terms from the chapter.
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The Economics of Unions (2 of 2)
• When union raises the wage above the equilibrium level
• Higher quantity of labor supplied
• Smaller quantity of labor demanded
• Unemployment
• Better off: Employed workers (insiders)
• Worse off: Unemployed (outsiders)
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Are Unions Good or Bad for the Economy?
• Critics
• Unions are cartels: They raise wages above equilibrium, which
causes unemployment and depresses wages in non-union labor
markets
• Inefficient and inequitable
• Advocates
• Unions counter the market power of large firms
• Make firms more responsive to workers’ concerns
• Keep a happy and productive workforce
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Active Learning 3: Structural or Frictional
Unemployment?
• Which of the following would be most likely to reduce frictional
unemployment?
A. The government eliminates the minimum wage
B. The government increases unemployment insurance benefits
C. A new law bans labor unions
D. More workers post their resumes at [Link], and more
employers use [Link] to find suitable workers to hire
E. Sectoral shifts become more frequent
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Think-Pair-Share Activity
While watching the news, the news anchor says, “Unemployment statistics
released by the Department of Labor today show an increase in unemployment
from 6.1 to 6.2%. This is the third month in a row where the unemployment
rate has increased.” Your roommate says, “Every month there are fewer and
fewer people with jobs. I don’t know how much longer the country can
continue like this.”
A. Can your roommate’s statement be deduced from the unemployment
rate statistic? Why or why not?
B. What information would you need to determine whether there are really
fewer people with jobs?
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