CHAPTER9Unemploymentand InflationChapterOutlineandLearningObjectives9.1Measuring the UnemploymentRate,theLaborForceParticipation Rate,andtheEmployment-PopulationRatio9.2Types ofUnemployment9.3Explaining Unemployment9.4Measuring Inflation9.5UsingPrice IndexestoAdjustfortheEffectsofInflation9.6Nominal Interest Rates versusReal InterestRates9.7DoesInflationImposeCostsontheEconomy?
1 Chapter Outline and Learning Objectives 9.1 Measuring the Unemployment Rate, the Labor Force Participation Rate, and the Employment -Population Ratio 9.2 Types of Unemployment 9.3 Explaining Unemployment 9.4 Measuring Inflation 9.5 Using Price Indexes to Adjust for the Effects of Inflation 9.6 Nominal Interest Rates versus Real Interest Rates 9.7 Does Inflation Impose Costs on the Economy? CHAPTER 9 CHAPTER Unemployment and Inflation
MeasuringUnemploymentand InflationLast chapter, we learned about how to measure total output-acritical first step in understanding the economy.In this chapter, we continue along these lines, learning about how tomeasure unemployment and inflation.These are very important and commonly-used macroeconomicconcepts; we want to solidify what they mean, so that we can talkintelligentlyaboutthem@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 2 Measuring Unemployment and Inflation Last chapter, we learned about how to measure total output—a critical first step in understanding the economy. In this chapter, we continue along these lines, learning about how to measure unemployment and inflation. These are very important and commonly-used macroeconomic concepts; we want to solidify what they mean, so that we can talk intelligently about them
MeasuringtheUnemploymentRate,theLaborForceParticipationRate,andtheEmployment-PopulationRatio9.1LEARNINGOBJECTIVEDefine the unemploymentrate,thelaborforceparticipationrate,and theemployment-populationratioandunderstandhowtheyarecomputed@2015PearsonEducafion,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 3 Measuring the Unemployment Rate, the Labor Force Participation Rate, and the Employment–Population Ratio 9.1 Define the unemployment rate, the labor force participation rate, and the employment–population ratio and understand how they are computed
MeasuringUnemploymentThere are more than 300 million people in the United States, andmonitoring and reporting on their activities regularly would be verydifficult and costly.Instead, the U.S. Department of Labor reports estimates ofemployment, unemployment, and other statistics related to the laborforce each month.Labor force: The sum of employed and unemployed workers in theeconomy.Of these statistics, the most watched is known as the unemploymentrate:thepercentageofthelaborforcethatisunemployed.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 Measuring Unemployment There are more than 300 million people in the United States, and monitoring and reporting on their activities regularly would be very difficult and costly. Instead, the U.S. Department of Labor reports estimates of employment, unemployment, and other statistics related to the labor force each month. Labor force: The sum of employed and unemployed workers in the economy. Of these statistics, the most watched is known as the unemployment rate: the percentage of the labor force that is unemployed
The Household SurveyEach month, the U.S.Bureau of the Census conducts the CurrentPopulation Survey (a.k.a. the household survey)..~60,000 households selected to be“representative": Household members of “working age" (16+ years old). Asked about employment during“reference week": Also asked about recent job-search activitiesPeople arethenclassifiedas:. Employed: Worked 1+ hours in reference week (or weretemporarily away from their jobs).Unemployed: Someone who is not currently at work but who isavailablefor work and who has actively looked for work during theprevious monthNot in the labor force, if neither of the above apply2015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 5 The Household Survey Each month, the U.S. Bureau of the Census conducts the Current Population Survey (a.k.a. the household survey). • ~60,000 households selected to be “representative” • Household members of “working age” (16+ years old) • Asked about employment during “reference week” • Also asked about recent job-search activities People are then classified as: • Employed: Worked 1+ hours in reference week (or were temporarily away from their jobs). • Unemployed: Someone who is not currently at work but who is available for work and who has actively looked for work during the previous month • Not in the labor force, if neither of the above apply
August913CivilianWorking-Age PopulationWorking-agepopulation245.9millionLaborforceNot iniabor force155.5million90.4millionEmployedNotavailableAvailableforUnemployedforworkworkbutnot144.2million11.3million(homemakerscurrentlyretirees,full.workingtime students,etc.)6.3million84.1millionDiscouragedNotcurrentlyDiscouraged workers:Peoplelookingbecauseworkersof childcarewho are availablefor work.but0.9millionresponsibilitiesortransportationorotherproblemshave not looked for a job during5.4millionthepreviousfourweeksbecausethey believe no jobs are availableFigure 9.1The employment status ofthe civilianworking-agefor them.population,August2013@2015PearsonEducation,Inc.6
© 2015 Pearson Education, Inc. 6 August 913 Civilian Working-Age Population Discouraged workers: People who are available for work, but have not looked for a job during the previous four weeks because they believe no jobs are available for them. The employment status of the civilian working-age population, August 2013 Figure 9.1
UnemploymentRateBased on the CPS estimates.we calculateseveralimportantmacroeconomic indicators.LaborforceThe most-watched is theunemployment rate:155.5millionNumber of unemployed×100 = Unemployment rateLabor force11.3 millionEmployedUnemployedx100=7.3%155.5 million11.3million144.2millionThismost-commonmeasureFigure 9.1The employment status ofof unemployment is knownthe civilian working-ageformallyasBLSseriesU-3population,August2013@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 7 Unemployment Rate The employment status of the civilian working-age population, August 2013 Figure 9.1 Based on the CPS estimates, we calculate several important macroeconomic indicators. • The most-watched is the unemployment rate: 100 Unemployment rate Labor force Number of unemployed = 100 7.3% 155.5 million 11.3 million = This most-common measure of unemployment is known formally as BLS series U-3
Labor Force Participation and Employment-PopulationAlso important are the laborforceparticipation rate (the percentage ofWorking-agepopulationthe working-age population in the labor245.9millionforce)...Labor forcex100=Laborforceparticipation rateWorking - age populationLaborforce155.9million×100=63.2%155.5million245.9 million. and the employment-populationratio (the percentage of the workingEmployedage population that is employed):144.2millionEmployment×100 = Employment-population ratioWorking - age population144.2 million×100=58.6%Figure9.1The employment status of245.9 millionthe civilian working-agepopulation,August2013@2015Pearson Education,Inc.8
© 2015 Pearson Education, Inc. 8 Labor Force Participation and Employment-Population Also important are the labor force participation rate (the percentage of the working-age population in the labor force). 100 Labor force participation rate Working - age population Labor force = 100 63.2% 245.9 million 155.9 million = . and the employment-population ratio (the percentage of the workingage population that is employed): 100 Employment- population ratio Working - age population Employment = 100 58.6% 245.9 million 144.2 million = The employment status of the civilian working-age population, August 2013 Figure 9.1
Problems withMeasuring the Unemployment RateThe unemployment rate measured by the BLS is not a perfectmeasure of joblessness. Why?It mayunderstateunemployment:Distinguishingbetweenpeople who are unemployed and not inthelabor force requires judgment (should we exclude “discouragedworkers"?)Only measures employment, not intensity of employment (full-timevs. part-time; some people are underemployed)It may overstate unemployment:: People might claim falsely to be actively looking for work. May claim not to be working to evade taxes or keep criminalactivityunnoticed92015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 9 Problems with Measuring the Unemployment Rate The unemployment rate measured by the BLS is not a perfect measure of joblessness. Why? It may understate unemployment: • Distinguishing between people who are unemployed and not in the labor force requires judgment (should we exclude “discouraged workers”?) • Only measures employment, not intensity of employment (full-time vs. part-time; some people are underemployed) It may overstate unemployment: • People might claim falsely to be actively looking for work • May claim not to be working to evade taxes or keep criminal activity unnoticed
Alternative Measures of Unemployment:U-6UnemploymentBroadermeasurerateofunemployment18%1614121086Officialmeasureof8unemployment20200020022004200820101996199820062012Some people suggest that we should includeFigure 9.2discouragedworkersandunderemployedworkersinThe officialunemployment ratethe unemployment statistics, to create a broaderandabroadmeasuremeasure of unemployment.oftheunemploymentrate,1996-2013The BLS measures this, calling it BLS series U-610@2015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 10 Alternative Measures of Unemployment: U-6 Some people suggest that we should include discouraged workers and underemployed workers in the unemployment statistics, to create a broader measure of unemployment. • The BLS measures this, calling it BLS series U-6. The official unemployment rate and a broad measure of the unemployment rate, 1996-2013 Figure 9.2