C.  Measuring the Labor Market

1.  Unemployment rate

• Unemployed - not working, available to work, actively seeking employment in last four weeks

• "Actively seeking employment" - register at a public or private employment office, meet with prospective employers, place or answer job advertisement, write letters of application, be on a union or professional register, or check with friends and relatives for job opportunities

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• Employed - persons who did any work as paid employees, worked in own business, worked in nonpaying family business at least 15 hours per week, and those temporarily absent from jobs

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• Labor force = employed + unemployed

- Excludes people in institutions, children, people in armed forces, those not seeking work (homemakers, students, etc.)

- Excludes discouraged workers - people who previously worked but are not currently seeking work because of economic concerns

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• Calculated by the Bureau of Labor Statistics

a. Surveys

(1) Current Population Survey (Household Survey) - monthly survey of 60,000 households

- Used to estimate unemployment rate

- 25% of households replaced every month

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(2)  Establishment Survey - monthly survey of 160,000 businesses and government agencies from a database of 400,000 existing worksites

- Used to estimate employment growth

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b.  Timing

- Released on first Friday of each month

- Interviews occur during week which includes the 12th of the month

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• Unemployment rate = unemployed / labor force

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• Labor force participation rate = employment-population ratio = labor force / noninstitutional population 16 and over

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2.  Types of unemployment

a.  Frictional unemployment

• People in between jobs

b.  Structural unemployment

• Mismatch between job skills and job openings

c.  Seasonal unemployment

• Due to predictable, periodic changes in labor supply and demand

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d.  Cyclical unemployment

• Caused by slow or negative economic growth

• Full employment - cyclical employment = 0

• Natural rate of unemployment - unemployment rate that allows a nation to sustain its current level of inflation (nonaccelerating inflation rate of unemployment)

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3.  Problems with the unemployment rate

a.  Overstates economic hardship

• May have multiple income earners in a family

b.  Understates economic hardship

• Part-time workers, discouraged workers not counted as unemployed\

c.  Doesn't account for underemployment

• Part-time work when full-time desired, employment below skill / education level

d.  Lags economic activity

• Occurs after an economic slowdown - hours cut first

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4.  Other measures

a.  Employment rate

• Employment rate = employment-population ratio = employed / noninstitutional population 16+

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b.  Length of time needed to find job

• Weak labor market => longer time to find a job

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c.  Alternative measures of labor underutilization