Notes on the Business Cycle and Unemployment (ECON 272)

Business Cycle (peaks, troughs, expansions, contractions):

Recession (The National Bureau of Economic Research - NBER - definition):  a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail sales (all measured on a monthly basis).  Note:  Depression is a severe recession!

Note that the NBER (as well as other private firms) - do not use GDP to assess the health the economy.  They look at:

• industrial production (bls)

• employment (bls)

• real income (measured by inflation-adjusted personal income of consumers) (bea)

• sales at both the wholesale and retail levels (census bureau)

From NBER: 

Depth:

Duration:

Dispersion:

Compare stats to long term potential growth of a country?  Trouble is -- defining what that is.

The Unemployment Rate - probably, along with GDP, the most often cited economic statistic.

How does the government get the data?  Most popular is:

The Current Population Survey (CPS) is a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics.

 It provides a body of data on the labor force, employment, unemployment, and persons not in the labor force.

To be classified as Unemployed: 

        a.

        b.

From the Bureau of Labor Statistics:

Source to look at:  Bureau of Labor Statistics

          (http://www.bls.gov/news.release/empsit.nr0.htm)

Calculation of the Unemployment Rate (November 2016 - seasonally adjusted) - the most recent data available at the time of printing your packet): Calculation of the unemployment rate is Unemployed/Labor Force.

You fill in the numbers from the data in your packet.

Historically:  http://www.bls.gov/

Full Employment does NOT mean zero unemployment!

Full Employment = 1986 it was considered to be 6.5%

Today = considered to be about 5% (although not agreed upon by all)

Unemployment Statistics by Gender, Race & Age

http://www.bls.gov/news.release/empsit.toc.htm

The U-6 Rate:

Lately, what has also become popular is the "U-6" unemployment rate:  includes everyone in the official rate plus "marginally attached workers" - those who are neither working nor looking for work, but say they want a job and have looked for work recently (discouraged); and people who are employed part-time for economic reasons, but want full-time work (can't find it).

Why important?

Other Alternative Measures (including U-6)

Notes on Unemployment: 

Why is full employment NOT zero unemployment? 

Frictional Unemployment:

Structural Unemployment:

On the other hand, there might be

Cyclical Unemployment:

Problems with the measurement of the Unemployment Rate (some overstate and others understate):

Overstated:

Understated:

    The main problem is how it is measured.  It can be very misleading!!  Let's see how:  Remember - the unemployment rate is a percent of the labor force -- not a percent of the non-institutionalized civilian population 16 and over.

Therefore (example):

Does this overstate or understate the rate now!!

Other problems with the measurement of unemployment:

Economists usually like to look at the employment numbers instead of the unemployment numbers. 

Employment Population Ratio (or Employment Rate):  Percent of the civilian - meaning not in the military (non-institutionalized, 16 and over) population that is employed.  Calculated as:   Employment / Civilian Non-institutionalized 16 and over Population

Nov.  2016 = 59.7%

In January of 2002, it was 62.7% and remained around there until 2008.  It has not returned to that level.  This is a very important indicator of what has happened in the job market since the recession began in 2008.

Economists often prefer this measure to the unemployment rate because it tells us how many people are actually working in the population overall.  Remember, the unemployment rate is a percent of the labor force, not the whole civilian population.  Note the drop in 08 and 09.

That is a lot of people not employed that used to be.  Many of these people will not show up in the unemployment numbers because they have dropped out of the labor force.

Employment Population Ratio - 16 and over (from BLS) http://data.bls.gov/timeseries/LNS12300000

We should also look at:

Labor Force Participation Rate:  Percent of the civilian (meaning not in the military, non-institutionalized, 16 and over) population that is in the labor force (want to work).  Calculated as:   Labor Force/Civilian Non-institutionalized 16 and over Population

Labor Force Participation Rate for Nov. 2016

All (civilian, non-institutionalized population 16 and over) - 62.7%

Last 10 years:  Look at the drop since around 08-09!!

http://data.bls.gov/timeseries/LNS11300000

Since 1950:

What about men, women, etc.?

http://www.bls.gov/emp/ep_table_303.htm

An Important Theory About Unemployment and Job Creation: 

This section relates to IMPORTANT CONCEPT READING SEVEN:  JOB CREATION AND PRODUCTIVITY

The government creates jobs – fallacy.  Why?  Must understand and apply the concept of opportunity cost!!

So how are new jobs really created?  Increases in productivity -- specifically, the ability to pay someone comes from an increase in productivity.

Productivity = Job Creation!!

Example:   Crusoe Economics (An increase in Productivity - savings, capital goods and job creation): 

DO ICE FIVE