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Ch:22
Employment and Wages
Population Survey
• Every month, the U.S. Census Bureau surveys
60,000 households and asks a series of
questions about the age and job market status of
its members.
• Called the Current Population Survey
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Slide 7-1
Employment and Wages
Population Survey (cont.)
• The working age population is the total number
of people aged 16 years an over who are not in
a jail, hospital, or some other form of
institutional care.
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Slide 7-2
Employment and Wages
Population Survey (cont.)
• The working age population is divided into
those in the labor force and those not in the
labor force.
• The labor force is divided into the employed
and the unemployed.
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Slide 7-3
Employment and Wages
To be counted as unemployed, a person
must be available for work and must be in
one of three categories:
1) Without work but has made specific
efforts to find a job within the previous
four weeks
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Slide 7-4
Employment and Wages
To be counted as unemployed, a person must
be available for work and must be in one of
three categories:
2) Waiting to be called back to a job from
which he or she has been laid off
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Slide 7-5
Employment and Wages
To be counted as unemployed, a person must
be available for work and must be in one of
three categories:
3) Waiting to start a new job within 30
days
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Slide 7-6
Population Labor Force Categories
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Slide 7-7
Employment and Wages
Three Labor Market Indicators
• The unemployment rate
• The labor force participation rate
• The employment-to-population ratio
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Slide 7-8
Employment and Wages
The unemployment rate is the percentage of
the people in the labor force who are
unemployed.
Number of
people unemployed
Unemployment rate =
 100
Labor force
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Slide 7-9
Employment and Wages
Labor force = Number of people employed
+ Number of people unemployed
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Slide 7-10
Employment and Wages
The labor force participation rate is the
percentage of the working-age population
who are members of the labor force.
Labor force
Labor force
= Working age population  100
participation rate
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Slide 7-11
Employment and Wages
Discouraged Workers
People who are available and willing to work
but have made not made specific efforts to find
a job within the previous four weeks.
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Slide 7-12
Employment and Wages
The employment-to-population ratio is the
percentage of people of working age who
have jobs.
Employment-to- =
population ratio
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Number of people
employed
Working-age
population
 100
Slide 7-13
Employment, Unemployment,
and the Labor Force: 1960–1996
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Slide 7-14
Learning Objectives
• Define the unemployment rate, the labor
force participation rate, the employment-topopulation ratio, and aggregate hours
• Describe the trends and fluctuations in the
indicators of labor market performance
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Slide 7-15
The Changing Face of
the Labor Market
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Slide 7-16
Employment and Wages
Aggregate Hours
• The indicators previously studied are useful
signs of the health of the economy.
• However, they do not measure the productivity
of labor.
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Slide 7-17
Employment and Wages
Aggregate hours are the total number of
hours worked by all the people employed,
both full time and part time, during a year.
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Slide 7-18
Aggregate Hours: 1960–1998
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Slide 7-19
Aggregate Hours: 1960–1998
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Slide 7-20
Employment and Wages
Wage Rates
• The real wage rate is the quantity of goods and
services that an hour's work can buy.
• Equals the money wage rate divided by the
price level
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Slide 7-21
Real Wage Rates: 1960 – 1998
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Slide 7-22
Learning Objectives (cont.)
• Describe the sources of unemployment, its
duration, and the groups that are most
affected by it
• Explain how employment and wage rates
are determined by demand and supply in the
labor market
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Slide 7-23
Unemployment and
Full Employment
People become unemployed if they:
1) Lose their jobs and search for another job.
2) Leave their jobs and search for another job.
3) Enter or reenter the labor force to search for a
job.
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Slide 7-24
Unemployment and
Full Employment
Job losers are people who are laid off, either
permanently or temporarily.
• Biggest source of unemployment.
• Numbers fluctuate considerably.
Job leavers are people who voluntarily quit
their jobs.
• Smallest and most stable source of
unemployment.
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Slide 7-25
Unemployment and
Full Employment
Entrants are people who are entering the
labor force.
Reentrants are people who have previously
withdrawn from the labor force.
• Reentrants/entrants are a large component of
the unemployed.
• Numbers fluctuate mildly.
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Slide 7-26
Labor Market Flows
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Slide 7-27
Unemployment by Reasons
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Slide 7-28
Unemployment by Duration
Less than 5 weeks
5-14 weeks
Business cycle peak
15-26 weeks
Business cycle trough
27 weeks and over
0
10
20
30
40
50
Percentage of unemployment
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Slide 7-29
Unemployment by Demographic Group
Black males 16-19
Black females 16-19
White males 16-19
White females 16-19
Business cycle peak
Black males 20 and over
Black females 20 and over
Business cycle trough
White males 20 and over
White females 20 and over
0
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10
20
30
Unemployment rate
40
Slide 7-30
Unemployment and
Full Employment
There are three types of unemployment:
1) Frictional
2) Structural
3) Cyclical
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Slide 7-31
Unemployment and
Full Employment
Frictional Unemployment
• Arises from normal labor turnover — people
entering and leaving the labor force and the
creation and destruction of jobs
• Influenced by unemployment benefits
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Slide 7-32
Unemployment and
Full Employment
Structural Unemployment
• Arises when changes in technology or
international competition change the skills
needed to perform jobs or change the locations
of jobs
• Typically lasts longer than frictional
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Slide 7-33
Unemployment and
Full Employment
Cyclical Unemployment
• Arises from the fluctuations of the business
cycle
• Increases during a recession and decreases
during and expansion
• The natural rate of unemployment excludes
cyclical unemployment
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Slide 7-34
Unemployment and
Full Employment
Full employment exists when the
unemployment rate equals the natural rate
of unemployment.
• It fluctuates periodically
• Economists disagree about the size of the
natural rate and the extent to which it fluctuates
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Slide 7-35
Learning Objectives (cont.)
• Describe the sources of unemployment, its
duration, and the groups that are most
affected by it
• Describe the relationship between
employment, unemployment, and real GDP
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Slide 7-36
Unemployment and Real GDP
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Slide 7-37
Unemployment and Real GDP
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Slide 7-38
Unemployment and Real GDP
• As real GDP fluctuates around potential
GDP, the unemployment rate fluctuates
around the natural rate of unemployment.
• In the deep recession of 1982,
unemployment reached almost 10 percent.
• In the milder recession of 1990-1991, the
unemployment rate peaked at less than 8
percent.
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Slide 7-39
The End
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Slide 7-40