Macroeconomics Chapter 6

Working-Age Population

Total number of people in US 16 and older who are not in jail, an institution or the military

Labor Force

Number of people employed plus number of people unemployed

Employed

If during the week prior they worked at least 1 hour as paid employees or were not working but had jobs or businesses from which they were temporarily absent

Unemployed

All people during the week before had no employment or were available for work and made specific efforts to find employment in the previous 4 weeks

Two Main Labor Market Indicators

Unemployment Rate, Labor Force Participation Rate

Unemployment Rate

Percentage of he people in the labor force who are unemployed

Unemployment Rate Formula

Number of people employed/labor force X 100

Labor Force Participation Rate

The percentage of the working age population who are members of the labor force

Labor Force Participation Rate

Labor force/working-age population x 100

Unemployment Definition Omits

Marginally attached workers, part-time workers

Marginally Attached Worker

A person who doesn't have a job, bur hasn't made efforts to find a job within the previous 4 weeks

Discouraged worker

A marginally attached worker who has not made specific efforts to find a job in the past 4 weeks because unsuccessful attempts were discouraging

Full-Time Workers

Those who work more than 35 hours a week

Part-Time Workers

Those who work less than 35 hours a week

Part-Time (Economic)

People who work 1-34 hours but are looking for full-time work

Part-Time (Non-Economic)

Do not want full time work and are not available for such work

Labor Force Participation (Gender)

Falling percentage of males rising percentage of females

U-3

The employment rate based on the standard definition of employment

U-1

Percentage of the labor force that has been unemployed for 5 weeks or more and is a measure of long-term voluntary unemployment

U-2

Percentage of labor force who are laid off and is using another measure of involuntary employment

U-6

Includes people who work part time for economic reasons

Frictional Unemployment

The unemployment that arises from people entering and leaving the labor force. Quitting jobs to find better ones, from ongoing creation and destruction of jobs

Structural Unemployment

Unemployment that arises when changes in technology or international competition change skills needed to perform jobs or change location of jobs

Cyclical Unemployment

The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak

Natural Unemployment

The employment that arises from frictions and structural change when there is no cyclical unemployment

Full Employment

A situation in which the unemployment rate equals the natural employment rate

Natural Unemployment Rate Influenced By

Distribution of the population, the pace of the structural change, real wage rate, unemployment benefits

Age Distribution of the Population

Young population has high number of new job seekers, which leads to higher level of frictional unemployment

Pace of Structural Change

The amount of structural employment fluctuates with pace of technological change and the change driven by fierce international competition

Real Wage Rate

If real wage is raised above market equilibrium there is a surplus in labor and an increased natural unemployment rate

Federal Minimum Wage

Creates unemployment because it is set above the equilibrium wage rate of low-skilled young workers

Efficiency Wage

Set above the going market wage to enable firms to attract most productive workers, get them to work hard and discourage them from quitting

Unemployment Benefits

Increase natural employment rate by lowering the opportunity cost of a job search

Output Gap

Real GDP minus Potential GDP expressed as a percentage of potential GDP