ECON 1202 Lecture Notes - Lecture 8: Real Income, Menu Cost, Efficiency Wage
Chapter 8: Unemployment and Inflation
The US Unemployment Rate: 1948-2017
• Unemployment always rises during recessions and usually (but not always) falls during
period of economic expansion
Defining Unemployment
• Unemployment rate
o The percent of the total number of people in the labor force who are
unemployed
• Labor force
o All workers, employed or unemployed
• Labor force participation rate
o The percentage of adults (people 16 and older) in the labor force
• Discouraged workers
o People who are available for work but have not looked for a job during the
previous four weeks because they believe no jobs are available for them
• Measuring the labor force participation rate
o The % of adult (16+) noninstitutionalized civilian population who are working or
actively looking for work
o
• Measuring unemployment
o The unemployment rate is the present of the labor force without a job
o
The Significance of the Unemployment Rate
• The unemployment rate is a good indicator of how easy or difficult it is to find a job
given the current state of the economy
• It can overstate the true level of unemployment
• Even if the labor market is healthy, it takes time to find the right job
• It can understate the true level of unemployment
o You are not “unemployed” if you have given up looking for a job because there
are no jobs available
Problems with Unemployment Statistics
• Discouraged workers
o Nonworking people who have given up looking for work for the time being; not
considered unemployed
o The deeper the recession, the more discouraged workers there are
• Marginally attached workers
o Those who were available and actively looked for work recently but are not
currently looking
o Looked in the past 12 months but not in the past 4 weeks
• Underemployed workers
o People who work part time because they cannot find full-time jobs
Alternative Measures of Unemployment
So how good an indicator is the unemployment rate?
• It isn’t perfect
• It doesn’t measure the quality of jobs or how well people are matched to their jobs
• Economists also look at other indicators
o Labor force participation rate
o Number of full-time jobs
o Average wages
Unemployment Rates and Demographics
• Data show that unemployment rates vary greatly between groups
Growth and Unemployment
• A jobless recovery
o Period in which the real GDP growth rate is positive, but the unemployment rate
is still rising
• Generically there is a negative relationship between economic growth and the
unemployment rate
Economics in Action: Failure to Launch
• Times of high unemployment are especially hard on recent graduates
The Natural Rate of Unemployment
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