ECON 1202 1st Edition Lecture 10 Outline of Last Lecture I. Components of GDPII. Does GDP Measure What We Want It to Measure?III. Real GDP vs. Nominal GDPOutline of Current Lecture I. Measuring Unemployment Rate, the Labor Force Participation Rate, and the Employment-Population RatioII. Types of UnemploymentCurrent LectureI. Measuring Unemployment Rate, the Labor Force Participation Rate, and the Employment-Population Ratioa. There are more than 300 million people in the US, and monitoring a reporting on their activities regularly would be very difficult and costly.b. Instead the US Department of Labor reports estimates of employment, unemployment, and other statistics related to the labor force each monthi. Labor force: the sum of employed and unemployed works in the economyc. Of theses stats, the most watched is unemployment rated. Each month, the US Bureau of Census conducts the Current Population Survey (aka the household survey)i. 60000 households selected to be “representative”ii. Household members of working age (16 years +)These 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.iii. Asked about employment during “reference week”iv. Asked about recent job-search activitiesv. People are classified as 1. Employed if they work 1+ hours in reference week2. Unemployed if they did not work, BUT were available to work andlooked for work in the previous 4 weeks3. Not in the labor force if neither of the above applye. 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. f. Unemployment Ratei. Based on the CPD estimates, we calculate several important macroeconomic indicators ii. The most watched is the unemployment rate:1.ratent Unemployme100forceLabor unemployed ofNumber g. Also important are the labor-force participation rate (the percentage of the working age population in the labor force)…i.rateion participat forceLabor 100population age-WorkingforceLabor h. And the employment-population ratio (the percentage of the working-age population that is employed):i.rateion participat forceLabor 100population age-WorkingforceLabor ii. The unemployment rate measured by the BLS is not a perfect measure of joblessness because:1. It may understate employment:a. Distinguishing between people who are unemployed and not in the labor force requires judgment (should we exclude “discouraged workers”?)b. Only measures employment, not intensity of employment (full-time vs. part-time; some people are underemployed)2. It may overstate unemployment:a. People might claim falsely to be actively looking for workb. May claim not to be working to evade taxes or keep criminal activity unnoticediii. Some people suggest that we should include discouraged workers and underemployed workers in the unemployment statistics, to create a broader measure of unemployment.iv. Labor Force Participation Rate has been decreasing for men because:1. Men have been retiring earlier than before2. Increases in Social Security Disability Insurance availability have allowed people with disabilities to stop worki. How long are people typically unemployed?i. Long periods for unemployment are bad for workers, as their skills decay and they risk becoming discouraged and depressed.ii. During the Great Depression of the 1930s, some people were unemployed for years at a time. j. In addition toe household survey, the BLS also uses the establishment survey (akathe payroll survey)i. This survey samples about 300,000 establishments, or places of employment, about their employees. Disadvantages include:1. Self-employed people not surveyed (not on a company payroll)2. Newly-opened firms often omitted3. Information on employment only, not unemployment4. Numbers fluctuate depending on establishments included, often requiring large revisionsii. A big advantage, though, is that the data are determined by real payrolls, not self-reporting like the household surveyk. Job Creation and Destructioni. Jobs are continually being created and destroyed in the US economy. In 2010, about 26.6 million jobs were created, while about 25.4 million jobs were destroyed. 1. This is a natural and normal process for the economyII. Types of Unemploymenta. Unemployment rates rise when the economy is faltering, and fall when the economy is doing well. But they never fall to zero. b. Three types of Unemploymenti. Frictional Unemployment1. This is short-term unemployment that arises from the process of matching workers with jobs.2. It occurs mostly because of job search: entering or re-entering the labor force, between jobs. 3. It also occurs because of seasonal unemployment: some jobs fluctuate in availability due to seasonal demand, like ski-instructor or farm-work. 4. To control for this, the BLS releases raw and seasonally adjusted employment