The economy’s natural rate of unemployment refers to the amount of unemployment that the economy normally experiences.. Cyclical unemployment refers to the year-to-year fluctuations in u
Trang 1Y O U W I L L .
E x a m i n e h o w
u n e m p l o y m e n t
r e s u l t s w h e n f i r m s
c h o o s e t o p a y
e f f i c i e n c y w a g e s
C o n s i d e r h o w
u n e m p l o y m e n t c a n
r e s u l t f r o m
m i n i m u m - w a g e l a w s
L e a r n a b o u t t h e
d a t a u s e d t o
m e a s u r e t h e a m o u n t
o f u n e m p l o y m e n t
C o n s i d e r h o w
u n e m p l o y m e n t
a r i s e s f r o m t h e
p r o c e s s o f j o b
s e a r c h
S e e h o w
u n e m p l o y m e n t c a n
a r i s e f r o m
b a r g a i n i n g b e t w e e n
f i r m s a n d u n i o n s
Losing a job can be the most distressing economic event in a person’s life Most
people rely on their labor earnings to maintain their standard of living, and many
people get from their work not only income but also a sense of personal
accom-plishment A job loss means a lower living standard in the present, anxiety about
the future, and reduced self-esteem It is not surprising, therefore, that politicians
campaigning for office often speak about how their proposed policies will help
create jobs
In the preceding two chapters we have seen some of the forces that determine
the level and growth of a country’s standard of living A country that saves and
in-vests a high fraction of its income, for instance, enjoys more rapid growth in its
capital stock and its GDP than a similar country that saves and invests less An
even more obvious determinant of a country’s standard of living is the amount of
unemployment it typically experiences People who would like to work but cannot
U N E M P L O Y M E N T
A N D I T S N A T U R A L R A T E
Trang 2find a job are not contributing to the economy’s production of goods and services Although some degree of unemployment is inevitable in a complex economy with thousands of firms and millions of workers, the amount of unemployment varies substantially over time and across countries When a country keeps its workers as fully employed as possible, it achieves a higher level of GDP than it would if it left many of its workers standing idle
This chapter begins our study of unemployment The problem of unemploy-ment is usefully divided into two categories—the long-run problem and the
short-run problem The economy’s natural rate of unemployment refers to the amount of unemployment that the economy normally experiences Cyclical unemployment
refers to the year-to-year fluctuations in unemployment around its natural rate, and it is closely associated with the short-run ups and downs of economic activity Cyclical unemployment has its own explanation, which we defer until we study short-run economic fluctuations later in this book In this chapter we discuss the determinants of an economy’s natural rate of unemployment As we will see, the
designation natural does not imply that this rate of unemployment is desirable.
Nor does it imply that it is constant over time or impervious to economic policy It merely means that this unemployment does not go away on its own even in the long run
We begin the chapter by looking at some of the relevant facts that describe un-employment In particular, we examine three questions: How does the govern-ment measure the economy’s rate of unemploygovern-ment? What problems arise in interpreting the unemployment data? How long are the unemployed typically without work?
We then turn to the reasons why economies always experience some unem-ployment and the ways in which policymakers can help the unemployed We dis-cuss four explanations for the economy’s natural rate of unemployment: job search, minimum-wage laws, unions, and efficiency wages As we will see, long-run unemployment does not arise from a single problem that has a single solution Instead, it reflects a variety of related problems As a result, there is no easy way for policymakers to reduce the economy’s natural rate of unemployment and, at the same time, to alleviate the hardships experienced by the unemployed
I D E N T I F Y I N G U N E M P L O Y M E N T
We begin this chapter by examining more precisely what the term unemployment
means We consider how the government measures unemployment, what prob-lems arise in interpreting the unemployment data, and how long the typical spell
of unemployment lasts
H O W I S U N E M P L O Y M E N T M E A S U R E D ?
Measuring unemployment is the job of the Bureau of Labor Statistics (BLS), which
is part of the Department of Labor Every month the BLS produces data on unem-ployment and on other aspects of the labor market, such as types of emunem-ployment,
Trang 3length of the average workweek, and the duration of unemployment These data
come from a regular survey of about 60,000 households, called the Current
Popu-lation Survey
Based on the answers to survey questions, the BLS places each adult (aged
six-teen and older) in each surveyed household into one of three categories:
◆ Employed
◆ Unemployed
◆ Not in the labor force
A person is considered employed if he or she spent most of the previous week
working at a paid job A person is unemployed if he or she is on temporary layoff,
is looking for a job, or is waiting for the start date of a new job A person who fits
neither of the first two categories, such as a full-time student, homemaker, or
re-tiree, is not in the labor force Figure 26-1 shows this breakdown for 1998
Once the BLS has placed all the individuals covered by the survey in a
cate-gory, it computes various statistics to summarize the state of the labor market The
BLS defines the labor force as the sum of the employed and the unemployed:
Labor force Number employed number of unemployed
Adult
population
(205.2 million)
Labor force (137.7 million)
Employed (131.5 million)
Not in labor force Unemployed (6.2 million)
F i g u r e 2 6 - 1
T HE B REAKDOWN OF THE
P OPULATION IN 1998 The Bureau of Labor Statistics divides the adult population into three categories: employed, unemployed, and not in the labor force.
S OURCE : Bureau of Labor Statistics.
l a b o r f o r c e
the total number of workers, including both the employed and the unemployed
Trang 4The BLS defines the unemployment rate as the percentage of the labor force that
is unemployed:
The BLS computes unemployment rates for the entire adult population and for more narrow groups—blacks, whites, men, women, and so on
The BLS uses the same survey to produce data on labor-force participation
The labor-force participation rate measures the percentage of the total adult
pop-ulation of the United States that is in the labor force:
Labor-force participation rate 100
This statistic tells us the fraction of the population that has chosen to participate in the labor market The labor-force participation rate, like the unemployment rate, is computed both for the entire adult population and for more narrow groups
To see how these data are computed, consider the figures for 1998 In that year, 131.5 million people were employed, and 6.2 million people were unemployed The labor force was
Labor force 131.5 6.2 137.7 million
The unemployment rate was
Unemployment rate (6.2/137.7) 100 4.5 percent
Because the adult population was 205.2 million, the labor-force participation rate was
Labor-force participation rate (137.7/205.2) 100 67.1 percent
Hence, in 1998, two-thirds of the U.S adult population were participating in the labor market, and 4.5 percent of those labor-market participants were with-out work
Table 26-1 shows the statistics on unemployment and labor-force participation for various groups within the U.S population Three comparisons are most appar-ent First, women have lower rates of labor-force participation than men, but once
in the labor force, women have similar rates of unemployment Second, blacks have similar rates of labor-force participation as whites, and they have much higher rates of unemployment Third, teenagers have lower rates of labor-force participation and much higher rates of unemployment than the overall popula-tion More generally, these data show that labor-market experiences vary widely among groups within the economy
The BLS data on the labor market also allow economists and policymakers to monitor changes in the economy over time Figure 26-2 shows the unemployment rate in the United States since 1960 The figure shows that the economy always has some unemployment and that the amount changes from year to year The normal rate of unemployment around which the unemployment rate fluctuates is called
the natural rate of unemployment, and the deviation of unemployment from its
Labor force Adult population
Number of unemployed Labor force
u n e m p l o y m e n t r a t e
the percentage of the labor force
that is unemployed
l a b o r - f o r c e
p a r t i c i p a t i o n r a t e
the percentage of the adult
population that is in the labor force
n a t u r a l r a t e o f
u n e m p l o y m e n t
the normal rate of unemployment
around which the unemployment
rate fluctuates
Trang 5natural rate is called cyclical unemployment In the figure, the natural rate is
shown as a horizontal line at 5.5 percent, which is a rough estimate of the natural
rate for the U.S economy during this period Later in this book we discuss
U NEMPLOYMENT L ABOR -F ORCE
D EMOGRAPHIC G ROUP R ATE P ARTICIPATION R ATE
A DULTS ( AGES 20 AND OVER )
T EENAGERS ( AGES 16–19)
S OURCE : Bureau of Labor Statistics.
Ta b l e 2 6 - 1
T HE L ABOR -M ARKET
E XPERIENCES OF V ARIOUS
D EMOGRAPHIC G ROUPS This table shows the unemployment rate and the labor-force participation rate of various groups in the U.S population for 1998.
10
8
6
4
2
0
Percent of
Labor Force
1995
Natural rate of unemployment
Unemployment rate
F i g u r e 2 6 - 2
U NEMPLOYMENT R ATE SINCE 1960 This graph uses annual data on the unemployment
rate to show the fraction of the labor force without a job.
Source: U.S Department of Labor.
c y c l i c a l u n e m p l o y m e n t
the deviation of unemployment from its natural rate
Trang 6C A S E S T U D Y LABOR-FORCE PARTICIPATION
OF MEN AND WOMEN IN THE U.S ECONOMY Women’s role in American society has changed dramatically over the past cen-tury Social commentators have pointed to many causes for this change In part,
it is attributable to new technologies such as the washing machine, clothes dryer, refrigerator, freezer, and dishwasher, which have reduced the amount of time required to complete routine household tasks In part, it is attributable to improved birth control, which has reduced the number of children born to the typical family And, of course, this change in women’s role is also partly at-tributable to changing political and social attitudes Together these develop-ments have had a profound impact on society in general and on the economy in particular
Nowhere is that impact more obvious than in data on labor-force participa-tion Figure 26-3 shows the labor-force participation rates of men and women in the United States since 1950 Just after World War II, men and women had very different roles in society Only 33 percent of women were working or looking for work, in contrast to 87 percent of men Over the past several decades, the dif-ference between the participation rates of men and women has gradually di-minished, as growing numbers of women have entered the labor force and some men have left it Data for 1998 show that 60 percent of women were in the labor force, in contrast to 75 percent of men As measured by labor-force partic-ipation, men and women are now playing a more equal role in the economy The increase in women’s labor-force participation is easy to understand, but the fall in men’s may seem puzzling There are several reasons for this decline
short-run economic fluctuations, including the year-to-year fluctuations in unem-ployment around its natural rate In the rest of this chapter, however, we ignore the short-run fluctuations and examine why unemployment is a chronic problem for market economies
M ORE WOMEN ARE WORKING NOW THAN EVER BEFORE
Trang 7First, young men now stay in school longer than their fathers and grandfathers
did Second, older men now retire earlier and live longer Third, with more
women employed, more fathers now stay at home to raise their children
Full-time students, retirees, and stay-at-home fathers are all counted as out of the
labor force
D O E S T H E U N E M P L O Y M E N T R AT E M E A S U R E
W H AT W E WA N T I T T O ?
Measuring the amount of unemployment in the economy might seem
straightfor-ward In fact, it is not Whereas it is easy to distinguish between a person with a
full-time job and a person who is not working at all, it is much harder to
distin-guish between a person who is unemployed and a person who is not in the labor
force
Movements into and out of the labor force are, in fact, very common More
than one-third of the unemployed are recent entrants into the labor force These
entrants include young workers looking for their first jobs, such as recent college
graduates They also include, in greater numbers, older workers who had
previ-ously left the labor force but have now returned to look for work Moreover, not all
unemployment ends with the job seeker finding a job Almost half of all spells of
unemployment end when the unemployed person leaves the labor force
Because people move into and out of the labor force so often, statistics on
un-employment are difficult to interpret On the one hand, some of those who report
being unemployed may not, in fact, be trying hard to find a job They may be
calling themselves unemployed because they want to qualify for a government
100
80
60
40
20
0
Labor-Force
Participation
Rate (in percent)
Women Men
F i g u r e 2 6 - 3
L ABOR -F ORCE P ARTICIPATION
R ATES FOR M EN AND W OMEN SINCE 1950 This figure shows the percentage of adult men and women who are members of the labor force It shows that over the past several decades, women have entered the labor force, and men have left it.
S OURCE : U.S Department of Labor.
Trang 8program that financially assists the unemployed or because they are actually working and being paid “under the table.” It may be more realistic to view these individuals as out of the labor force or, in some cases, employed On the other hand, some of those who report being out of the labor force may, in fact, want to work These individuals may have tried to find a job but have given up after an
unsuccessful search Such individuals, called discouraged workers, do not show
up in unemployment statistics, even though they are truly workers without jobs According to most estimates, adding discouraged workers would increase the measured unemployment rate by about one-half of one percentage point
There is no easy way to fix the unemployment rate as reported by the BLS to make it a more reliable indicator of conditions in the labor market In the end, it is best to view the reported unemployment rate as a useful but imperfect measure of joblessness
H O W L O N G A R E T H E U N E M P L O Y E D W I T H O U T W O R K ?
In judging how serious the problem of unemployment is, one question to consider
is whether unemployment is typically a short-term or long-term condition If un-employment is short-term, one might conclude that it is not a big problem Work-ers may require a few weeks between jobs to find the openings that best suit their tastes and skills Yet if unemployment is long-term, one might conclude that it is a serious problem Workers unemployed for many months are more likely to suffer economic and psychological hardship
Because the duration of unemployment can affect our view about how big a problem unemployment is, economists have devoted much energy to studying data on the duration of unemployment spells In this work, they have uncovered a
result that is important, subtle, and seemingly contradictory: Most spells of
unem-ployment are short, and most unemunem-ployment observed at any given time is long-term.
To see how this statement can be true, consider an example Suppose that you visited the government’s unemployment office every week for a year to survey the unemployed Each week you find that there are four unemployed workers Three
of these workers are the same individuals for the whole year, while the fourth per-son changes every week Based on this experience, would you say that unemploy-ment is typically short-term or long-term?
Some simple calculations help answer this question In this example, you meet
a total of 55 unemployed people; 52 of them are unemployed for one week, and three are unemployed for the full year This means that 52/55, or 95 percent, of un-employment spells end in one week Thus, most spells of unun-employment are short Yet consider the total amount of unemployment The three people unemployed for one year (52 weeks) make up a total of 156 weeks of unemployment Together with the 52 people unemployed for one week, this makes 208 weeks of unemployment
In this example, 156/208, or 75 percent, of unemployment is attributable to those individuals who are unemployed for a full year Thus, most unemployment ob-served at any given time is long-term
This subtle conclusion implies that economists and policymakers must be careful when interpreting data on unemployment and when designing policies to help the unemployed Most people who become unemployed will soon find jobs Yet most of the economy’s unemployment problem is attributable to the relatively few workers who are jobless for long periods of time
d i s c o u r a g e d w o r k e r s
individuals who would like to work
but have given up looking for a job
Trang 9W H Y A R E T H E R E A LWAY S S O M E P E O P L E U N E M P L O Y E D ?
We have discussed how the government measures the amount of unemployment,
the problems that arise in interpreting unemployment statistics, and the findings
of labor economists on the duration of unemployment You should now have a
good idea about what unemployment is
This discussion, however, has not explained why economies experience
un-employment In most markets in the economy, prices adjust to bring quantity
sup-plied and quantity demanded into balance In an ideal labor market, wages would
adjust to balance the quantity of labor supplied and the quantity of labor
de-manded This adjustment of wages would ensure that all workers are always fully
employed
Of course, reality does not resemble this ideal There are always some workers
without jobs, even when the overall economy is doing well In other words, the
unemployment rate never falls to zero; instead, it fluctuates around the natural
rate of unemployment To understand this natural rate, we now examine the
rea-sons why actual labor markets depart from the ideal of full employment
To preview our conclusions, we will find that there are four ways to explain
unemployment in the long run The first explanation is that it takes time for
work-ers to search for the jobs that are best suited for them The unemployment that
re-sults from the process of matching workers and jobs is sometimes called frictional
unemployment,and it is often thought to explain relatively short spells of
unem-ployment
The next three explanations for unemployment suggest that the number of
jobs available in some labor markets may be insufficient to give a job to everyone
who wants one This occurs when the quantity of labor supplied exceeds the
quan-tity demanded Unemployment of this sort is sometimes called structural
unem-ployment,and it is often thought to explain longer spells of unemployment As we
will see, this kind of unemployment results when wages are, for some reason, set
above the level that brings supply and demand into equilibrium We will examine
three possible reasons for an above-equilibrium wage: minimum-wage laws,
unions, and efficiency wages
Q U I C K Q U I Z : How is the unemployment rate measured? ◆ How might
the unemployment rate overstate the amount of joblessness? How might it
understate it?
J O B S E A R C H
One reason why economies always experience some unemployment is job search
Job searchis the process of matching workers with appropriate jobs If all workers
and all jobs were the same, so that all workers were equally well suited for all jobs,
job search would not be a problem Laid-off workers would quickly find new
jobs that were well suited for them But, in fact, workers differ in their tastes and
skills, jobs differ in their attributes, and information about job candidates and job
f r i c t i o n a l u n e m p l o y m e n t
unemployment that results because
it takes time for workers to search for the jobs that best suit their tastes and skills
s t r u c t u r a l u n e m p l o y m e n t
unemployment that results because the number of jobs available in some labor markets is insufficient
to provide a job for everyone who wants one
j o b s e a r c h
the process by which workers find appropriate jobs given their tastes and skills
Trang 10vacancies is disseminated slowly among the many firms and households in the economy
W H Y S O M E F R I C T I O N A L U N E M P L O Y M E N T I S I N E V I TA B L E
Frictional unemployment is often the result of changes in the demand for labor among different firms When consumers decide that they prefer Compaq over Dell computers, Compaq increases employment, and Dell lays off workers The former Dell workers must now search for new jobs, and Compaq must decide which new workers to hire for the various jobs that have opened up The result of this transi-tion is a period of unemployment
Similarly, because different regions of the country produce different goods, employment can rise in one region while it falls in another Consider, for instance, what happens when the world price of oil falls Oil-producing firms in Texas re-spond to the lower price by cutting back on production and employment At the same time, cheaper gasoline stimulates car sales, so auto-producing firms in Michigan raise production and employment Changes in the composition of
de-mand among industries or regions are called sectoral shifts Because it takes time for
workers to search for jobs in the new sectors, sectoral shifts temporarily cause un-employment
Frictional unemployment is inevitable simply because the economy is always changing A century ago, the four industries with the largest employment in the United States were cotton goods, woolen goods, men’s clothing, and lumber To-day, the four largest industries are autos, aircraft, communications, and electrical components As this transition took place, jobs were created in some firms, and jobs were destroyed in others The end result of this process has been higher pro-ductivity and higher living standards But, along the way, workers in declining in-dustries found themselves out of work and searching for new jobs
Data show that at least 10 percent of U.S manufacturing jobs are destroyed every year In addition, more than 3 percent of workers leave their jobs in a typical month, sometimes because they realize that the jobs are not a good match for their tastes and skills Many of these workers, especially younger ones, find new jobs
at higher wages This churning of the labor force is normal in a well-functioning and dynamic market economy, but the result is some amount of frictional unemployment
P U B L I C P O L I C Y A N D J O B S E A R C H
Even if some frictional unemployment is inevitable, the precise amount is not The faster information spreads about job openings and worker availability, the more rapidly the economy can match workers and firms The Internet, for instance, may help facilitate job search and reduce frictional unemployment In addition, public policy may play a role If policy can reduce the time it takes unemployed workers
to find new jobs, it can reduce the economy’s natural rate of unemployment Government programs try to facilitate job search in various ways One way is through government-run employment agencies, which give out information about job vacancies Another way is through public training programs, which aim to ease the transition of workers from declining to growing industries and to help