Lesson 23 Labor Market Measurement The labor market variables we focus on here are those measured in the monthly household survey, carried out by the Bureau of Labor Statistics. In this survey, people are divided into three groups: the employedthose who worked parttime or fulltime during the past week; the unemployedthose who were not employed during the past week but actively searched for work at some time during the last four weeks; and not in the labor forcethose who are neither employed or unemployed. Thus, the labor force is the employed plus the unemployed. Of key interest in analyzing the results of the household survey are the unemployment rate, measured as Unemployment rate = Number unemployed Labor force , the participation rate, measured as Participation rate = Labor force Total working age population , and the employmentpopulation ratio, measured as EmploymentPopulation ratio = Total employment Total working age population . The unemployment rate is a useful economic measure for at least two reasons. First, it helps determine the level of labor market tightness, which captures the degree of difficulty firms face in hiring workers, and the ease with which wouldbe workers can find a job. Labor market tightness falls as the unemployment rate increases, everything else held constant, as a higher unemployment rate tends to make it easier for a firm to recruit workers, and reflects greater difficulty for a wouldbe worker in finding a job. Second, the unemployment rate can be used as an indirect measure of economic welfare. While GDP per capita is a reasonable measure of aggregate economic welfare for a nation, the unemployment rate gives us some information on the distribution of income across the population. In spite of the existence of unemployment insurance programs in many countries, unemployment is not perfectly insured, and so income tends to be low for the unemployed. A higher unemployment rate then tends to be associated with greater dispersion in incomes across the populationthere is a higher concentration of poor people.