Jim’s Notes

Full Employment

Measuring Employment

Key Measures:

Unemployment Rate

Labor Force Partic.

Net New Jobs Created

Employment-Pop. Rate

TREE DIAGRAM

Defining Employment

Unemployed

no job, but
willing, able, and looking for work
Excludes discouraged workers

Employed

person is working a job or jobs
regardless of number of hours: part-time = 1 employed
multiple jobs per person = 1 employed
includes under-utilized workers
Ph.D asking ‘want fries with that’ is still just 1 employed person

Labor force

unemployed + employed

Not-in-labor force

retired, stay-at-home spouses, idle rich, non-working students, discouraged would-be workers (not looking)

Adult Civilian Non-Institutionalized Population

= labor force + not-in-labor-force
total population – institutionalized – active duty military – children under age 16
institutionalized includes both long-term hospitalized/nursing care and prison population

Unemployment rate

Unemployed as % labor force

Labor Force Participation Rate

Labor Force / Adult N-I Population

Employment Population ratio

employment / population

measures macroeconomic dependency ratio of society

Graphs: Historical changes and patterns

Types of Unemployment

Issue: Why do people not have jobs?

4 Types

Frictional

jobs exist for each unemployed worker but they haven’t matched up yet
generally represents people looking for jobs that do exist for them

Structural

open jobs exist but they require skills or locations that unemployed workers don’t possess
difficult to remedy, but usually education, job re-training, and possibly re-location of unemployed workers are needed
happens as a result of technological change or uneven geographical change

Seasonal

temporary unemployment due to job only exists during certain months of year
examples:
Christmas season retail clerks
summer lawn cutting jobs
winter downhill ski instructors
relatively easy to eliminate from employment statistics through ‘seasonal adjustment’ statistical techniques
if employment numbers are not seasonally adjusted, then seasonal unemployment variations will make raw data very difficult to interpret accurately

Cyclical

more unemployed workers than available job openings.
results from failure of economy to operate at capacity
jobs have been eliminated due to cyclical downturns in economy (recession)
when economy grows and returns to capacity, cyclical unemployment is eliminated

Policy Goal: ‘full employment’

Importance of Employment

Labor most critical resource

Unused labor resources costly:

Lost potential output
Costs to support unemployed

Compounded future lost output

Personal costs

‘Natural Rate of unemployment’

defined as zero cyclical unemployment – economy is at capacity

assumes no signficant structural unemployment

measured using seasonally adjusted data – so no seasonal unemployment is included

ONLY frictional unemployment exists

in Neo-classical theory, the ‘natural rate’ is also called the ‘NAIRU’ (non-accelerating inflation rate of unemployment)

Estimated @ approx 4.0 – 4.5% (US)

Full Employment is usually defined as achieving ‘natural rate of unemployment’

Cyclical Unemp = 0%

NOT = 0% unemployment rate

Alternative used in past in some countries: more job openings than unemployed workers