Meaning & Calculation of

Unemployment

Objectives:

• How is unemployment measured and calculated?

• What is the relationship between the unemployment rate and economic growth?

Defining & Measuring Unemployment• Employed – people are currently holding a job in the

economy, either full-time or part time

• Unemployed – people are actively looking for work but aren’t currently employed• “jobless, looking for jobs, available for work”• Retired people don’t count• Disabled people don’t count• An individual is considered unemployed if he or she

doesn’t currently have a job and has been actively seeking a job during the past four weeks

Defining & Measuring Unemployment

• Labor Force – sum of the employed and the unemployed • People who are currently working and the

people who are currently looking for work

• Labor force participation rate is the share of the working-age population that is in the labor force

Unemployment Rate• The labor force participation rate is the percentage of the

population aged 16 or older that is in the labor force.

The unemployment rate is the percentage of the total number of people in the labor force who are unemployed.

Significance of the Unemployment Rate• Unemployment rate is low, nearly everyone who wants a job

can find one

• Discouraged workers are nonworking people who are capable of working but have given up looking for a job given the state of the job market.

• Marginally attached workers would like to be employed and have looked for a job in the recent past but are not currently looking for work.

• Underemployment is the number of people who work part time because they cannot find full-time jobs.

Unemployment RateAlternative Measures of Unemployment, 1994-2008

1994 1996 1998 2000 2002 2004 2006 2008

Year

12%

10

8

6

4

2

Percentage of labor force

Unemployment RateUnemployment Rates of Different Groups, 2007

White teenager

35%

30

25

20

15

10

5

0

Unemployment rate

Overall African-Amerian teenager

African-Amerian

14.4%

4.7%

31.2%

7.7%

Unemployment RateUnemployment and Recessions, 1978-2008

1980 1985 1990 1995 2000 2005 2008

Year

12%

10

8

6

4

2

Unemployment Rate

Growth & Unemployment

• Periods of economic expansion, the unemployment rate usually falls

• But….economic expansions aren’t always periods of falling unemployment• Because…..the economy can be growing, but

not always growing fast enough to reduce the unemployment rate

Remember: Falling real GDP equals rising rate of

unemployment