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15:Employment and Unemployment

15:Employment and Unemployment. What are the unemployment rate, the labor force participation rate, and other labor market measures? What are the sources and duration of unemployment? What is full employment? How are employment and wage rates determined by supply and demand?. Vital Signs.

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15:Employment and Unemployment

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  1. 15:Employment and Unemployment • What are the unemployment rate, the labor force participation rate, and other labor market measures? • What are the sources and duration of unemployment? • What is full employment? • How are employment and wage rates determined by supply and demand?

  2. Vital Signs • The monthly unemployment report is treated as a critical measure of the health of the economy. • To understand the importance of the unemployment rate, we need to know how it is measured and whether it is reliable.

  3. Employment and WagesWhy do we care?? • Real GDP depends on: • the quantities of labor and capital employed • entrepreneurship • the state of technology

  4. Population Survey • Every month, the U.S. Census Bureau conducts the Current Population Survey. • This survey covers 60,000 households and is used to estimate: • the size of the working age population • the number of people employed • the number of people unemployed

  5. Population Categories • The working-age population is the total number of people 16 years and older who are not in jail, hospital, or some other form of institutional care. • The working-age population is divided into two groups: those in the labor force and those not in the labor force.

  6. The Labor Force • The labor force is made up of two groups: the employed and the unemployed. • The number of people in the labor force is the sum of the number employed and the number unemployed.

  7. Who Is Employed? • To be counted as employed, a person must have either a full-time or part-time job. • Those with part-time jobs are counted as employed even if they would accept full-time employment if it was offered.

  8. Who Is Unemployed? • To be counted as unemployed, a person must be available for work and be in one of three categories: • Without work, but has made specific efforts to find work during the previous four weeks • Waiting to be called back to a job from which he or she has been laid off • Waiting to start a new job within the next 30 days.

  9. Labor Force Reallocation LS80 Real wage rate (1992 dollars per hour) Services 10.00 LD80 18 30 Labor (millions of people)

  10. Full Employment • Full employment occurs when the unemployment rate equals the natural rate of unemployment. • The unemployment rate will not be zero at full employment because there will still be frictional and structural unemployment.

  11. Explaining Employmentand Wage Rates • Demand and Supply in the Labor Market • The labor demand curve shows the quantity of labor that firms plan to hire at each possible real wage rate. • Firms attempt to maximize profits

  12. Explaining Employmentand Wage Rates • Demand and Supply in the Labor Market • The labor supply curve shows the quantity of labor that households plan to supply at each possible real wage rate. • Households strive to use their scarce time in the most efficient way

  13. The Labor Market 16 Real wage rate (1992 dollars per hour) 15 14 0 215 Labor (billions of hours per year)

  14. The Labor Market 16 Real wage rate (1992 dollars per hour) 15 14 LD 0 215 Labor (billions of hours per year)

  15. The Labor Market LS 16 Real wage rate (1992 dollars per hour) 15 14 LD 0 215 Labor (billions of hours per year)

  16. The Labor Market LS 16 Real wage rate (1992 dollars per hour) 15 14 LD 0 215 Labor (billions of hours per year)

  17. The Labor Market LS Labor surplus 16 Real wage rate (1992 dollars per hour) 15 Full employment 14 LD Labor shortage 0 215 Labor (billions of hours per year)

  18. Explaining Employmentand Wage Rates • The Trends in Employment and Wage Rates • Since 1960, aggregate hours has increased from 125 billion to 218 billion in 1996 • Real wages increased from $11 an hour to $15 an hour • Technology has made workers more productive • The demand for labor has increased as has the population

  19. Explaining Labor Market Trends LS60 15.00 11.00 Real wage rate (1992 dollars per hour) LD60 125 218 300 Labor (billions of hours per year)

  20. Explaining Labor Market Trends LS60 15.00 11.00 Real wage rate (1992 dollars per hour) LD96 LD60 125 218 300 Labor (billions of hours per year)

  21. Explaining Labor Market Trends LS60 LS96 15.00 11.00 Real wage rate (1992 dollars per hour) LD96 LD60 125 218 300 Labor (billions of hours per year)

  22. Explaining Labor Market Trends LS60 LS96 15.00 11.00 Real wage rate (1992 dollars per hour) LD96 LD60 125 218 300 Labor (billions of hours per year)

  23. Explaining Employmentand Wage Rates • Changes in the Distribution of Jobs and Wage Rates • Wage rates of manufacturing nonsupervisory workers has decreased

  24. Labor Force Reallocation LSM 12.60 Real wage rate (1992 dollars per hour) Manufacturing LD80 18 20 30 Labor (millions of people)

  25. Labor Force Reallocation LSM 12.60 11.80 Real wage rate (1992 dollars per hour) Manufacturing LD80 LD96 18 20 30 Labor (millions of people)

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