Unemployment Rate

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  Modern Labor Economics

  Theory and Public Policy - International Student Edition

  • Ronald G. Ehrenberg, Robert S. Smith, Kevin F. Hallock(Authors)
  • 2021(Publication Date)
  • Taylor & Francis

    (Publisher)

  CHAPTER 14 Unemployment

  With the dramatic rise in unemployment in the Great Recession of 2007–2009 and then with the spike during the COVID-19 crisis has come a renewed interest in understanding both the measurement and—more importantly—the causes of unemployment. As noted in Chapter 2 , the population can be divided into those people who are in the labor force (L) and those who are not (N). The labor force consists of people who are employed (E) and those who are unemployed but would like to be employed (U). The concept of unemployment is somewhat ambiguous because, in theory, almost anyone would be willing to be employed in return for a generous-enough compensation package. Economists tend to resolve this dilemma by defining unemployment in terms of an individual’s willingness to be employed at some prevailing market wage. Government statistics take a more pragmatic approach, defining unemployed people as those who are on temporary layoff waiting to be recalled by their previous employer, or those without a job who have actively searched for work in the previous month (of course, “actively” is not precisely defined1 ).

  Given these definitions, the Unemployment Rate (u) is measured as the ratio of the number of unemployed people to the number people in the labor force:

  u =

  U L

  (14.1)

  Much attention focuses on how the national Unemployment Rate varies over time and how Unemployment Rates vary across geographic areas and age/race/gender/ethnic groups.

  However, Unemployment Rate data have limitations. They do reflect the proportion of a group that, at a point in time, actively want to work but are not employed. For a number of reasons, however, they do not necessarily provide an accurate reflection of the economic hardship that members of a group experience. First, individuals who are not actively searching for work, including those who searched unsuccessfully and then gave up, are not counted among unemployed people (see Chapter 7 ).2

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  Modern Labor Economics

  Theory and Public Policy (International Student Edition)

  • Ronald G. Ehrenberg, Robert S. Smith(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Chapter 14 Unemployment

  With the dramatic rise in unemployment in the Great Recession of 2007–2009 has come a renewed interest in understanding both the measurement and— more importantly—the causes of unemployment. As noted in chapter 2 , the population can be divided into those people who are in the labor force (L ) and those who are not (N ). The labor force consists of those people who are employed (E ) and those who are unemployed but would like to be employed (U ). The concept of unemployment is somewhat ambiguous, since, in theory, virtually anyone would be willing to be employed in return for a generous enough compensation package. Economists tend to resolve this dilemma by defining unemployment in terms of an individual’s willingness to be employed at some prevailing market wage. Government statistics take a more pragmatic approach, defining the unemployed as those who are on temporary layoff waiting to be recalled by their previous employer, or those without a job who have actively searched for work in the previous month (of course, “actively” is not precisely defined).

  Given these definitions, the Unemployment Rate (u) is measured as the ratio of the number of the unemployed to the number in the labor force:

  u =

  U L

  ⁢            

  ( 14.1 )

  Much attention is focused on how the national Unemployment Rate varies over time and how Unemployment Rates vary across geographic areas and age/race/gender/ethnic groups.

  It is important, however, to understand the limitations of Unemployment Rate data. They do reflect the proportion of a group that, at a point in time, actively want to work but are not employed. For a number of reasons, however, they do not necessarily provide an accurate reflection of the economic hardship that members of a group are suffering. First, individuals who are not actively searching for work, including those who searched unsuccessfully and then gave up, are not counted among the unemployed (see chapter 7

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  Principles of Economics 2e

  • Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
  • 2017(Publication Date)
  • Openstax

    (Publisher)

  The human costs of unemployment alone would justify making a low level of unemployment an important public policy priority. However, unemployment also includes economic costs to the broader society. When millions of unemployed but willing workers cannot find jobs, economic resource are unused. An economy with high unemployment is like a company operating with a functional but unused factory. The opportunity cost of unemployment is the output that the unemployed workers could have produced. This chapter will discuss how economists define and compute the Unemployment Rate. It will examine the patterns of unemployment over time, for the U.S. economy as a whole, for different demographic groups in the U.S. economy, and for other countries. It will then consider an economic explanation for unemployment, and how it explains the patterns of unemployment and suggests public policies for reducing it. 21.1 | How Economists Define and Compute Unemployment Rate By the end of this section, you will be able to: • Calculate the labor force participation rate and the Unemployment Rate • Explain hidden unemployment and what it means to be in or out of the labor force • Evaluate the collection and interpretation of unemployment data Newspaper or television reports typically describe unemployment as a percentage or a rate. A recent report might have said, for example, from August 2009 to November 2009, the U.S. Unemployment Rate rose from 9.7% to 10.0%, but by June 2010, it had fallen to 9.5%. At a glance, the changes between the percentages may seem small. However, remember that the U.S. economy has about 160 million adults (as of the beginning of 2017) who either have jobs or are looking for them. A rise or fall of just 0.1% in the Unemployment Rate of 160 million potential workers translates into 160,000 people, which is roughly the total population of a city like Syracuse, New York, Brownsville, Texas, or Pasadena, California.

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  Principles of Macroeconomics for AP® Courses 2e

  • Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
  • 2017(Publication Date)
  • Openstax

    (Publisher)

  The human costs of unemployment alone would justify making a low level of unemployment an important public policy priority. However, unemployment also includes economic costs to the broader society. When millions of unemployed but willing workers cannot find jobs, economic resource are unused. An economy with high unemployment is like a company operating with a functional but unused factory. The opportunity cost of unemployment is the output that the unemployed workers could have produced. This chapter will discuss how economists define and compute the Unemployment Rate. It will examine the patterns of unemployment over time, for the U.S. economy as a whole, for different demographic groups in the U.S. economy, and for other countries. It will then consider an economic explanation for unemployment, and how it explains the patterns of unemployment and suggests public policies for reducing it. 7.1 | How Economists Define and Compute Unemployment Rate By the end of this section, you will be able to: • Calculate the labor force participation rate and the Unemployment Rate • Explain hidden unemployment and what it means to be in or out of the labor force • Evaluate the collection and interpretation of unemployment data Newspaper or television reports typically describe unemployment as a percentage or a rate. A recent report might have said, for example, from August 2009 to November 2009, the U.S. Unemployment Rate rose from 9.7% to 10.0%, but by June 2010, it had fallen to 9.5%. At a glance, the changes between the percentages may seem small. However, remember that the U.S. economy has about 160 million adults (as of the beginning of 2017) who either have jobs or are looking for them. A rise or fall of just 0.1% in the Unemployment Rate of 160 million potential workers translates into 160,000 people, which is roughly the total population of a city like Syracuse, New York, Brownsville, Texas, or Pasadena, California.

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  Principles of Macroeconomics 2e

  • Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
  • 2017(Publication Date)
  • Openstax

    (Publisher)

  The human costs of unemployment alone would justify making a low level of unemployment an important public policy priority. However, unemployment also includes economic costs to the broader society. When millions of unemployed but willing workers cannot find jobs, economic resource are unused. An economy with high unemployment is like a company operating with a functional but unused factory. The opportunity cost of unemployment is the output that the unemployed workers could have produced. This chapter will discuss how economists define and compute the Unemployment Rate. It will examine the patterns of unemployment over time, for the U.S. economy as a whole, for different demographic groups in the U.S. economy, and for other countries. It will then consider an economic explanation for unemployment, and how it explains the patterns of unemployment and suggests public policies for reducing it. 8.1 | How Economists Define and Compute Unemployment Rate By the end of this section, you will be able to: • Calculate the labor force participation rate and the Unemployment Rate • Explain hidden unemployment and what it means to be in or out of the labor force • Evaluate the collection and interpretation of unemployment data Newspaper or television reports typically describe unemployment as a percentage or a rate. A recent report might have said, for example, from August 2009 to November 2009, the U.S. Unemployment Rate rose from 9.7% to 10.0%, but by June 2010, it had fallen to 9.5%. At a glance, the changes between the percentages may seem small. However, remember that the U.S. economy has about 160 million adults (as of the beginning of 2017) who either have jobs or are looking for them. A rise or fall of just 0.1% in the Unemployment Rate of 160 million potential workers translates into 160,000 people, which is roughly the total population of a city like Syracuse, New York, Brownsville, Texas, or Pasadena, California.

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  Introducing a New Economics

  Pluralist, Sustainable and Progressive

  • Jack Reardon, Maria Alejandra Caporale Madi, Molly Scott Cato(Authors)
  • 2017(Publication Date)
  • Pluto Press

    (Publisher)

  The Unemployment Rate is the most visible and perhaps best-known barometer of the labour market. It generally increases during recessions and decreases during expansions; thus, typically, the longer the expansion, the lower the Unemployment Rate. The current global conceptual framework for measuring the labour force was officially adopted by the 13th International Conference of Labour Statisticians in 1982. Whether a person is categorised as unemployed is determined by a survey questionnaire asking about his or her activities during a specific reference point, e.g. a specific week during the previous month. The following are some commonly used definitions:

  •   Working-age population, or economically active population: the total number of people aged 16 years and over.

  •   Labour force: the number of people employed, plus the number unemployed from the working-age population, over the age of 16.

  •   Labour force participation rate: the percentage of the working-age population who are members of the labour force; to obtain the rate, the latter is divided by the former.

  •   Unemployed population: all persons who, during a specified week, had no job and were available for work and had made efforts to find employment.

  •   Unemployment Rate: the percentage of people in the labour force who are unemployed. It is calculated by dividing the number of unemployed by the number of people in the labour force, then multiplying by 100. Question: If workers give up their search for work, what happens to the Unemployment Rate?

  •   Vulnerable employment:

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  Labor and the Economy

  • Howard M. Wachtel(Author)
  • 2013(Publication Date)
  • Academic Press

    (Publisher)

  Those who criticize the use of the Unemployment Rate as a barometer of economic health point to this phenomenon of a steady, even rising, employment rate, which indicates that more Americans are working today, as a proportion of the eligible civilian population, than ever before. The traditional unemploy-ment rate, in their eyes, overstates the weakness of the economy. Which measure of economic health is legitimate—the employment rate or the Unemployment Rate? It is difficult to say, since the Unemployment Rate and the employment rate measure different aspects of the economy. The unem-ployment rate counts individuals who want to work and are prepared to actively seek work. For them, the economy has failed since it has not provided a job. On the other hand, the employment rate reflects the ability of our economy to accommodate the aspirations of a segment of society that heretofore did not seek employment at such a rate. This reflects a strength and buoyancy in the economy—an absorptive capacity of which we can be proud. However, this does not negate the despair that the unemployed face each day as they contemplate more time without work. 2 5 4 CHAPTER 13 / UNEMPLOYMENT: MEANING, MEASUREMENT FIXED W E I G H T Unemployment Rate Unemployment affects different segments of the American population unevenly. Not every group in the American economy has the same Unemployment Rate. As long as the unemployment statistics have been gathered, the Unemployment Rates for youths, blacks, and women have been higher than they have been for prime-age white males. In 1982, for example, when the overall Unemployment Rate for the entire economy was 9.7 percent, the rate for blacks was 17.3 percent. For young people, under 20 years of age, the Unemployment Rate in 1982 was 23.2 percent. 11 In Table 13-6 data are presented for the year 1980, showing the unem-ployment rates for men and women, white and black, broken down by age categories.

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  Demystifying Global Macroeconomics

  • John E. Marthinsen(Author)
  • 2020(Publication Date)
  • De Gruyter

    (Publisher)

  For policymakers, it is also essential to un-derstand these measures so that proper diagnoses can be made of existing or impending economic problems and credible solutions can be enacted. Unemployment Rates vary over time and internationally due to differences in economic, social, and demographic factors. For this reason, care should be taken when drawing conclusions from comparative data. Because there are Conclusion 71 different types of unemployment (e.g., frictional, structural, seasonal, and cy-clical), there is no single solution to reducing it — but increased demand cer-tainly helps. Moreover, because measures of labor market conditions might overstate or understate the actual level of economic hardship in a nation, gov-ernment policies and business decisions should be based on a broad selection of key labor market measures. Key Points – Labor market conditions – Joblessness can reduce self-esteem, lower self-confidence, and cause mental distress. – Labor market measures help predict costs of production and top-line sales growth. – Labor market fluctuations affect employee turnover, productivity, and loyalty. – The changing state of labor markets has direct and indirect impacts on economic activity via their influences on government decisions, central bank policies, and business expectations. – Unemployment and employment-to-population measures – The employed are those individuals who have worked for any number of hours during the relevant survey period. – The unemployed are those individuals without jobs, available to work, and actively seeking employment. – The labor force includes individuals who are employed and unemployed. All others are Not in the Labor Force. – The Unemployment Rate equals the number of unemployed divided by the labor force. – The employment-to-population ratio equals the number of people employed di-vided by the civilian noninstitutional population 16 years of age and older.

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  Tracking America's Economy

  • Norman Frumkin(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  9

  Unemployment

  Jobs directly affect the material well-being of workers and their families. To workers out of work, unemployment is not an abstract idea in a theoretical discussion. Thus, voters experiencing unemployment are more likely to vote for politicians who offer different perceptions of how the economy works with the promise of job creation, as noted by Alberto Alesina and Nouriel Roubini.1

  Unemployment also affects people and the economy in intangible ways, such as its influence on personal satisfaction and social stability. Though personal satisfaction and social stability are not strictly “economic,” they can affect economic developments (see chapter 14 , “Noneconomic Intangibles”).

  This chapter covers the official measures of unemployment based on household surveys of the civilian noninstitutional population sixteen years and older, the role of unemployment insurance, matching unemployed workers with job openings, cyclical movements of the labor force, and unemployment goals.

  UNEMPLOYMENT DATA

  Unemployment data are prepared monthly by the Bureau of Labor Statistics (BLS) in the U.S. Department of Labor based on data obtained from a survey of a sample of households. The data series are published in the BLS monthly journals, Employment and Earnings and the Monthly Labor Review (www.bis.gov).

  The Unemployment Rate (UR) is defined as the percentage of the nation’s civilian noninstitutional labor force sixteen years and older that is out of work, actively looking for a job, and available for work. It is a relative measure of the degree of slack in job markets. At the most simple level, a relatively high UR indicates that production probably can be increased without generating inflation, because the available labor supply will tend to moderate wage rate increases and in some cases reduce wage rates. Conversely, in periods of low unemployment, high economic growth is more likely to raise wages—the tighter labor supply pushes up wages as more experienced and more productive workers are bid away from firm to firm on all steps of the skill ladder, which increases job openings for the less experienced and less productive workers. But the economy has not always conformed to this model (see chapter 2

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  Fundamentals of Labor Economics

  • Thomas Hyclak, Geraint Johnes, Robert Thornton, , Thomas Hyclak, Thomas Hyclak, Geraint Johnes, Robert Thornton(Authors)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Measures of Unemployment The two most widely used measures of the extent of unemployment in a given labor market are the Unemployment Rate and the duration of unemployment. The Unemployment Rate measures the incidence of unemployment at any point in time and provides an indicator of the average individual’s risk of experiencing a spell of unemployment. Duration measures the severity of unemployment. A spell of unemployment may be fairly easy to deal with if the individual finds a new job within a couple of weeks, while a spell of unemployment lasting several months is likely to have a more severe impact on the economic and psychological well-being of the individual. The Unemployment Rate In all countries, government agencies devote considerable resources to the collection of statistical data that enable them to calculate the Unemployment Rate. But what does the Unemployment Rate measure, and how is it calculated? The starting point is an estimate of the civilian working-age population. This usually excludes military personnel and those institutionalized in hospitals and prisons of vari- ous types because these persons are not available for work in the private labor market. The working-age population also excludes young children, with the minimum age used to define “working age” varying by country. In the United States, those younger than age 16 are excluded from the working-age population. Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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  International Labour Statistics

  A Handbook, Guide, and Recent Trends

  • R. Bean(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  (3) In the application of the criterion of current availability for work, especially in situations covered by subparagraph (2) above, appropriate tests should be developed to suit national circumstances. Such tests may be based on notions such as present desire for work and previous work experience, willingness to take up work for wage or salary on locally prevailing terms, or readiness to undertake self-employment activity given the necessary resources and facilities.

  (4) Notwithstanding the criterion of seeking work embodied in the standard definition of unemployment, persons without work and currently available for work who had made arrangements to take up paid employment or undertake self-employment activity at a date subsequent to the reference period should be considered as unemployed.

  (5) Persons temporarily absent from their jobs with no formal job attachment who were currently available for work and seeking work should be regarded as unemployed in accordance with the standard definition of unemployment. Countries may, however, depending on national circumstances and policies, prefer to relax the seeking work criterion in the case of persons temporarily laid off. In such cases, persons temporarily laid off who were not seeking work but classified as unemployed should be identified as a separate subcategory.

  (6) Students, homemakers and others mainly engaged in non-economic activities during the reference period who satisfy the criteria laid down in subparagraphs (1) and (2) above should be regarded as unemployed on the same basis as other categories of unemployed persons and be identified separately, where possible.

  THE Unemployment Rate

  It is the rate of unemployment rather than the absolute number of people unemployed that indicates the severity of unemployment. In the introductory section the rate, u, was defined as U/L, where L = E + U. In principle, nothing could be simpler, the denominator is the total labour force size - sometimes referred to as the ‘economically active population’ -which can be decomposed into those employed (E) and those unemployed (U). In practice, not all countries - or rather, statistical agencies - agree on what should be included in the economically active population. As we shall see, concepts and methods of measuring U differ from one country to another. Likewise, there are differences in the measurement of E. Thus, even if all countries agreed on how to measure U, but disagreed on how to measure E, comparisons of Unemployment Rates would be distorted.

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  Markets, Unemployment and Economic Policy

  Essays in Honour of Geoff Harcourt, Volume Two

  • Philip Arestis, Gabriel Palma, Malcolm Sawyer(Authors)
  • 2005(Publication Date)
  • Taylor & Francis

    (Publisher)

  The Council of the Royal Statistical Society (RSS), concerned by the political controversy and evident lack of public confidence in the headline claimant count, and the possible implications for the professional integrity of its members working in the Government Statistical Service, established a Working Party on the Measurement of Unemployment in the UK, whose membership included the present and immediate past presidents of the RSS. Their report was published on 5 April 1995.

  The report begins with a number of useful thoughts about the issues involved in defining and then measuring unemployment.4

  Involuntary unemployment

  The Cambridge economist Pigou was the first, it seems,5 to introduce the term ‘involuntary unemployment’ in his 1914 volume Unemployment. He defined unemployment as the number of persons without paid work who would like to work in their customary occupation at the going rate for the job.

  The amount of unemployment … in any industry is measured by the number of hours’ work … by which the employment of the persons attached to or occupied in that industry falls short of the number of hours’ work that these persons would have been willing to provide at the current rate of wages under current conditions of employment.

  (1914: 16)

  The stress on current rate of wages reflected, it appears, the then National Insurance Act whereby a man was still treated as unemployed even if he refused to work at less than the going rate for the job. Equally, the reference to the ‘going rate’ ensures that those with unrealistic wage expectations are classed as ‘voluntarily’ unemployed. Pigou, in his 1933 book Theory of Unemployment

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