Chapter 22 notes

Macro Chapter 22
1. Define the Unemployment rate and other labor market indicators.
2. Describe the trends and fluctuations in the indicators of labor market performance in the United States.
3. Describe the types of unemployment, define full employment, and explain the link between unemployment and real GDP.

Potential GDP is an estimation of maximum goods and services an economy can produce if it utilizes all its resources fully and efficiently and producing at full employment level.
1. Potential GDP is $13 trillion and when the price level is 11, real GDP equals potential GDP

Current Population Survey
Every month, 1,600 interviewers working on a joint project of the Bureau of Labor Statistics and the Bureau of the Census survey 60,000 households to establish the age and job market status of each member of the household.

Working-age population
Total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care or in the US Armed Forces.

Labor Force
The number of people employed plus the number unemployed.
In May 2013, the US labor force was 155.7 million- 143.9 million people were employed and 11.8 million people were unemployed.

Employed
The survey counts as employed all persons who, during the week before the survey:
1. Worked at least 1 hour in a paid job or 15 hours unpaid in family business.
2. Were not working but who had jobs from which they were temporarily absent.

Labor Market Indicators
The survey counts as unemployed all persons who, during the week before the survey:
1. Had no employment 16 years or older
2. able and willing to work but had no employment
3. Actively made efforts to find employment during the previous four weeks.
4. Were waiting to be recalled to a job from which they had been laid off.

Discouraged Workers
A person who does not have a job, is available to work, but has not made efforts to find a job within the previous four weeks.
Which demographic group is more likely to be discouraged?
Teenagers, low skills, high school dropouts, older workers, those who are out of work for long periods.
What is the consequence of discouraged workers on unemployment rate?
Under reports unemployment rate.

Two main labor market indicators
-The unemployment rate
The labor force participation rate
Unemployment rate is the percentage of people in the labor force who are unemployed.

Unemployment rate=(Number of people unemployed)/(Labor force)X100
In May 2013, the unemployment rate was 7.6 percent.

Labor force participation rate is the percentage of the working-age population who are members of the labor force.
Labor Force participation rate=(Labor force)/Working age population)X100
In May 2013, the labor force participation rate was 63.4 percent.

FUll-time workers are people who usually work 35 hours or more a week.
Part Time workers are people who usually work less than 35 hours a week.
Voluntary and involuntary part-time workers
Part-time for(involuntary) economic reasons are people who work 1-34 hours a week but are looking for full-time work.

Which sector would you find involuntary part-time workers?
Retail, agriculture, construction, restaurant, health care, seasonal, recession, etc.

Voluntary Part-time workers
People who work less than 35 hours per week.
Suitable to workers by balancing family and work; businesses benefit by less gvt. rules and benefits

Types of Unemployment
Frictional Unemployment- the unemployment that arises from normal labor turnover- from people entering and leaving the labor force and from the ongoing creation and destruction of jobs.
Structural unemployment- the unemployment that arises when changes in technology, international and domestic competition, changes in job skills needed to perform jobs or change the location of jobs.

Seasonal Unemployment- arises because of seasonal weather patterns.
Cyclical unemployment- the fluctuating unemployment over the business cycle that increases during a recession and increases during an expansion

Natural Rate of Unemployment Full Employment/Potential GDP
1. Unemployment Rate is less than 6%
2. The situation in which an economy operates at an unemployment rate equal to the sum of the seasonal, frictional, and structural unemployment rates
3. Cyclical unemployment rate is zero
Producing at potential GDP, fully employed economy

Real GDP per person grows and fluctuates around potential GDP per person.
Potential GDP per person grew at 2.8% in the 1960s and slowed to 1.9 percent in the 1970s.

During a recession, the unemployment rate exceeds the natural unemployment rate and the output gap is negative.

Potential GDP is the value of real GDP when all the economy's factors of procution are fully employed.
Below Potential GDP is when some factors of production are unemployed, real GDP is less than potential GDP.
Above Potential GDP when some factors of production are over-employed and working hard, real GDP exceeds GDP.

In the short term, real GDP fluctuates around potential GDP.

To measure the trend in the standard of living, we remove the influence of short-term fluctuations and focus on potential GDP.