ECON 2203 1st Edition Lecture 11KeyEquationsExamplesDefinitionsImportant InformationOutline• How to measure unemployment rate? How to measure unemployment rate?- Civilian non-institutional population (Adult population): - People above 16- Not in the military- Not living in an institution such as a prison or a hospital- Not in the Labor Force:- People under 16- People in the military- People living in an institution (ex. Prison, hospital)- Homemakers, retirees, and full-time studentsHow to measure unemployment rate?Bureau of Labor Statistics (BLS) divides civilian non-institutional population (adult population) into 3 groups based on Household survey – Employed: paid employees, self-employed, and unpaid workers in a family business – Unemployed: people not working who ___________ jobs– Not in the labor force: everyone elseThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.The labor force is the total number of workers, including the employed and unemployed.Question 1: Who is included in the labor force by the Bureau of Labor Statistics?a. Gabe, who does not have a job, but is looking for work (Unemployed)b. Marcus, a full-time student not looking for work  (Not in the labor force)c. Chris, a retired engineer not looking for other work  (Not in the labor force)d. None of the above is correctEmployment Status of the U.S. population—August 2011Not AdultAdultsUnder 16, Military, or Institutionalized- Unable to workNot in Labor Force(88.3 million)- Choose not to workUnemployed(12.5 million)Employed(142.5 million)Source: Hall and Lieberman, Macroeconomic Principles and Applications,6eLabor Force StatisticsUnemployment rate(“u-rate”) – percentage of the labor force that is unemployedUnemployment rate = Number of unemployed/(labor force) X 100%* Entire population of adults or smaller groupsLabor force = Number of employed + Number of unemployed* Summarizes the state of the labor marketLabor force participation rate- percentage of the adult population that is in the labor forceAdult Population = labor force + not in the labor forceLabor Force Participation Rate = Labor force/(adult population) X 100%* Tells the fraction of people that have chosen to work in the labor marketAdult population – Household members who are above16, not in the military, or currently not living in an institution like a prison or hospitalQuestion 2:Compute the labor force, unemployment rate, and labor force participation rate using this data:Adult population of the U.S. by group, July 2012# Of employed 142.2 million# Of unemployed 12.8 millionNot in labor force 88.3 millionLabor force = 142.2 million +12.8 million = 155 millionUnemployment rate = 12.8 million/(155 million) X 100% = 8.25%Adult Population= 155 million + 88.3 million = 243.3 millionLabor Force Participation = 155 million/(243.3) X 100% = 63.7%Limitations of Unemployment RateDoes the u-rate give an accurate impression of what’s happening in the labor market?A. Sue lost her job and begins looking for a new one.- Unemployment rate rises- A rising unemployment rate gives the impression that the labor market is worsening, and it isB. Joe, a steelworker who has been out of work since his mill closed last year, becomes discouraged and gives up looking for work.- Unemployment rate falls because Joe is no longer counted as unemployed.- A falling u-rate gives the impression that the labor market is improving, but it is not.Discouraged Workerso Would like to work but have given up looking for jobso Classified as “not in the labor force” rather than “unemployed”C. Sam, the sole earner in his family of 5, just lost his $80,000 job as a research scientist. Immediately, he takes a part-time job at McDonald’s until he can find another job in his field.- Unemployment rate does not change because a person is “employed” whether they work full or part time.- Things are worse, but the u-rate fails to show it. Involuntary Part-time Workerso Individuals who would like a full-time job, but who are working only part timeSummary for Unemployment RateThe Unemployment Rate is not a perfect indicator of joblessness or the health of the labor market:– It excludes discouraged workers. – It does not distinguish between full-time and part-time work, or people working part time because full-time jobs not available. – Some people misreport their work status in the BLS survey. • Despite these issues, the u-rate is still a very useful barometer of the labor market &