Jobs and Unemployment

# Jobs and Unemployment

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## Jobs and Unemployment

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1. 6 Jobs and Unemployment CHECKPOINTS

2. Checkpoint 6.1 Checkpoint 6.2 Checkpoint 6.3 Problem 1 Problem 1 Problem 1 Clicker version Problem 2 Problem 2 Clicker version Problem 2 Problem 3 Problem 3 Problem 3 Problem 4 Problem 4

3. Practice Problem 1 The Bureau of Labor Statistics reported that in July 2009: The labor force was 154.5 million. Employment was 140.0 million. The working-age population was 235.9 million. Calculate the unemployment rate and the labor force participation rate. CHECKPOINT 6.1

4. Solution The labor force is the sum of the number employed plus the number unemployed. So the number unemployed equals the labor force minus the number employed. Number unemployed = 154.5 million – 140.0 million = 14.5 million. The unemployment rate is the number unemployed as a percentage of the labor force. Unemployment rate = (14.5 million ÷ 154.5 million) x 100 = 9.4 percent. CHECKPOINT 6.1

5. The labor force participation rate is the percentage of the working-age population who are in the labor force. That is, labor force participation rate equals (154.5 million ÷ 235.9 million) x 100. Labor force participation rate is 65.5 percent. CHECKPOINT 6.1

6. Practice Problem 2 The BLS reported that in July 2009, the labor force was 154.5 million, employment was 140.0 million, and the working-age population was 235.9 million. The BLS also reported that 24 percent of all employment in July 2009 was part time and that 9.1 million people worked part time for economic reasons. How many people worked part time for noneconomic reasons? CHECKPOINT 6.1

7. Solution Part-time workers are divided into two groups: part time for economic reasons and part time for noneconomic reasons. Employment was 140 million. Part-time employment was 24 percent of 140 million, which equals 33.6 million. Given that 9.1 million people worked part time for economic reasons, 33.6 million minus 9.1 million, or 24.5 million people worked part time for noneconomic reasons. CHECKPOINT 6.1

8. Practice Problem 3 The Bureau of Labor Statistics reported that in July 2009, the labor force in Michigan was 4,864 thousand and employment was 4,134 thousand. Calculate the unemployment rate in Michigan in July 2009. CHECKPOINT 6.1

9. Solution The number unemployed equals the labor force minus the number employed. Unemployment equals 4,864,000 minus 4,134,000, which equals 730,000. Unemployment rate = (730,000 ÷ 4,864,000 ) x 100 = 15 percent. CHECKPOINT 6.1

10. Practice Problem 4 Hawaiian Airlines hires 100 workers, plans to add 170 more Hawaiian Airlines will hire more workers as it expands its fleet. The new hirings are a welcome sign for Hawaii’s economy, which lost jobs during the year to May 2009 as the state’s unemployment rate rose from 4% to 7%. Source: USA Today, August 18, 2009 The labor force was 602,000 in May 2009 and 622,600 in May 2008. Calculate the change in the number unemployed between May 2008 and May 2009. CHECKPOINT 6.1

11. Solution Unemployment rate = (Unemployment ÷ Labor force) x 100 Rearranging this equation gives: Unemployment = (Unemployment rate x Labor force) ÷ 100 In May 2008, unemployment was (4 x 622,600) ÷ 100, or 24,880. In May 2009, unemployment was (7 x 602,000) ÷ 100, or 42,140. The number of people unemployed increased by 42,140 minus 24,880, which equals 17,260. CHECKPOINT 6.1

12. Practice Problem 1 The figure shows the unemployment rate in the United States from 1960 to 2000. In which decade was the average unemployment rate the lowest and what brought low unemployment in that decade? In which decade was the average unemployment rate the highest and what brought high unemployment in that decade? CHECKPOINT 6.2

13. Solution The unemployment rate averaged 4.8 percent in the 1960s 6.2 percent in the 1970s 7.3 percent in the 1980s 5.7 percent in the 1990s. The average unemployment rate was lowest in the 1960s. In the 1960s, defense spending on the Vietnam War and an expansion of social programs brought an expanding economy. CHECKPOINT 6.2

14. The unemployment rate averaged 4.8 percent in the 1960s 6.2 percent in the 1970s 7.3 percent in the 1980s 5.7 percent in the 1990s. The average unemployment rate was highest in the 1980s. A deep recession in 1982 sent the unemployment rate to a peak of almost 10 percent. CHECKPOINT 6.2

15. Study Plan Problem In which decade was the average unemployment rate lowest and what brought that low unemployment rate? A. The 1990s; the development of the computer and cell phone. B. The 1960s; increased expenditure that resulted from the civil rights movement. C. The 1960s; Vietnam War defense spending, and consumer spending encouraged by expanded social programs. D. The 1990s; An expansion of the Asian economy that placed heavy demands on the United States. E. The 1980s; a war on poverty that led to increased spending by the poor. CHECKPOINT 6.2 • U.S. unemployment rate

16. In which decade was the average unemployment rate highest and what brought that high unemployment rate? A. The 1990s; the emergence of the European Union B. The 1970s; a collapse of the Asian economy. C. The 1980s; deep cuts in defense spending. D. The 1980s; a deep recession. E. The 1970s; Jimmy Carter’s austerity program. CHECKPOINT 6.2 • U.S. unemployment rate

17. Practice Problem 2 Describe the trends in the participation rates of men and women and all workers. Why did these trends occur? CHECKPOINT 6.2

18. Solution The participation rate of women increased because Better-educated women earn more. More white-collar jobs with flexible work hours were created. People have more time for paid employment. Families increasingly needed two incomes to balance their budgets. The participation rate of men decreased because more men remained in school and some men took early retirement. The overall participation rate increased. CHECKPOINT 6.2

19. Study Plan Problem The labor force participation rate of women increased between 1967 and 2007 because A. technological change created more white-collar jobs that women found attractive. B. technological change in the home increased the time available for paid employment. C. families wanted a second income to balance tight budgets. D. more women completed college and could earn a higher wage rate. E. all of the above. CHECKPOINT 6.2

20. The labor force participation rate of men decreased between 1967 and 2007 because ________ A. with enough wealth, some older men decided to retire early. B. some men lost their jobs at an age at which finding a new job was difficult, so they withdrew from the labor force. C. some younger men decided to remain in full-time education. D. all of the above CHECKPOINT 6.2

21. Practice Problem 3 For young people, a jobless summer July, the peak for youth summer jobs, saw the youth unemployment rate hit 18.5% in July 2009, the highest level since the BLS started recording youth labor statistics in 1948. The participation rate of young people was 51.4%, another historic low for the month of July. Source: The Wall Street Journal, August 27, 2009 Compare the changes in the labor force participation rate during the recessions in Table 1 (on next slide). During which recession did the labor force participation rate drop the most? CHECKPOINT 6.2

22. Solution As each recession progressed, the participation rate dropped, except during the 1973-1975 recession. The biggest drop occurred during the 2008–2009 recession. CHECKPOINT 6.2

23. Practice Problem 4 For young people, a jobless summer July, the peak for youth summer jobs, saw the youth unemployment rate hit 18.5% in July 2009, the highest level since the BLS started recording youth labor statistics in 1948. The participation rate of young people was 51.4%, another historic low for the month of July. Source: The Wall Street Journal, August 27, 2009 Compare the changes in the unemployment rate during the recessions in Table 1 (on next slide). During which recession did the unemployment rate rise the most? CHECKPOINT 6.2

24. Solution As each recession progressed, the unemployment rate rose. The biggest rise occurred during the 1973–1975 recession when youth unemployment in July rose from 11.1 percent to 16.3 percent—a 5.2 percentage point rise. CHECKPOINT 6.2

25. Practice Problem 1 The table sets out the results of a labor force survey. All the job losers, entrants, and reentrants became unemployed. Calculate the unemployment rate and the labor force participation rate in December 2009. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

26. Solution Unemployment in December 2009 equals unemployment in December 2008 plus job losers, job leavers, entrants, and reentrants minus hires and recalls and withdrawals. That is, unemployment = 1,500 + 750 + 300 +150 + 450 – 1,000 – 500 = 1,650. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

27. The unemployment rate is the percentage of the labor force who are unemployed. So first we need to calculate the labor force—the sum of employment and unemployment. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

28. The employment in December 2009 equals employment in December 2008 plus hires and recalls minus job losers and job leavers. That is, in December 2009 employment equals 13,500 + 1,000  750  300, which is 13,450. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

29. The labor force is the sum of unemployment and employment. The labor force equals1,650 + 13,450 = 15,100. The unemployment rate is the percentage of the labor force who are unemployed (1,650 ÷ 15,100) x 100 = 10.9 percent. CHECKPOINT 6.3 • December 2009: • Unemployment 1,650 • Employment 13,450

30. The labor force participation rate is the percentage of the working-age population who are in the labor force. In December 2008, the working-age population is the number employed, unemployed, and not in the labor force, which equals 13,500 + 1,500 + 7,500= 22,500. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

31. During 2009, the working-age population increased by 100, so in December 2009, the working-age population equals 22,500 + 100 = 22,600. In December 2009, the labor force participation rate is (15,100 ÷ 22,600) x 100 = 66.8 percent. CHECKPOINT 6.3 • In December 31, 2008: • Employment 13,500 • Unemployment 1,500 • Not in the labor force 7,500 • During 2009, • Hires and recalls, 1,000 • Job losers, 750 • Job leavers, 300 • Entrants, 150 • Entrants, 450 • Withdrawals, 500 • Working-age population increased by 100.

32. Practice Problem 2 Recovery won’t improve unemployment Despite some optimism about the seeds of recovery, the Congressional Budget Office (CBO) sees joblessness rising. The CBO sees unemployment peaking at 10.4% next year from an average of 9.3% this year, before it falls to 9.1% in 2011. Source: Fortune, August 25, 2009 Before the recession began, the U.S. unemployment rate was about 6 percent. As a recession begins, firms quickly make layoffs. Is this rise in unemployment mostly a rise in frictional, structural, or cyclical unemployment? CHECKPOINT 6.3

33. Solution When a recession starts, firms are quick to layoff workers. Most of the rise in unemployment is cyclical—related to the state of the economy. The unemployment rate rises quickly as the number of layoffs increases. CHECKPOINT 6.3

34. Practice Problem 3 Recovery won’t improve unemployment Despite some optimism about the seeds of recovery, the Congressional Budget Office (CBO) sees joblessness rising. The CBO sees unemployment peaking at 10.4% next year from an average of 9.3% this year, before it falls to 9.1% in 2011. Source: Fortune, August 25, 2009 Before the recession began, the U.S. unemployment rate was about 6 percent. How can real GDP increase (recovery) with unemployment still rising? CHECKPOINT 6.3

35. Solution The unemployment rate is a lagging indicator of the business cycle. When the recovery begins, firms start hiring. Unemployed workers get jobs, but reentry into the labor force increases as marginally attached workers start to look for jobs. In the early stages of a recovery, the number of entrants and reentrants exceeds the number of hires and the number unemployed increases. CHECKPOINT 6.3