EconNotes_Ch13.docx - Unemployment and Inflation Misery...

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Unemployment and Inflation Misery index- adds together the inflation rate and the unemployment rate to give a rough measure of the state of the economy Unemployment and inflation are important problems in the short-run, but the long-run success of an economy is best judged by its ability to generate high levels of real GDP per person Measuring the Unemployment Rate, the Labor Force Participation Rate, and the Employment-Population Ratio Each month, the U.S. Bureau of the Census conducts the Current Population Survey (household survey) to collect data needed to compute the unemployment rate The bureau interviews adults in a sample of 60,000 households, chosen to represent the U.S. population, about the employment status of everyone in the household 16 years of age and older People are considered: o Employed - someone who currently has a job or who is temporarily away from his or her job o Unemployed - someone who is not currently at work but who is available for work and who has actively looked for work during the previous month o Labor force - the sum of employed and unemployed workers in the economy o Unemployment rate - the percentage of the labor force that is unemployed
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o The BLS classifies the following groups of people who not have a job and are not actively looking for a job as not in the labor force: Retirees, homemakers, full-time students, and those on active military service, in prison, or in hospitals o 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 Unemployment rate- measures the percentage of the labor force that is unemployed o numberof unemployed labor force x 100 = unemployment rate Labor force participation rate- the percentage of the working-age population in the labor force o labor force working age population x 100 = labor force participationrate Employment-population ratio- measures the percentage of the working- age population that is employed o employment working age population x 100 = employment populationratio Problems with Measuring the Unemployment Rate Distinguishing between the unemployed and people who are not in the labor force o ex. During an economic recession, and increase in discouraged workers usually occurs, because these workers are not counted as unemployed, the unemployment rate may understate the true degree of joblessness in the economy BLS also count people as being employed if they hold part-time jobs even though they would prefer to hold full-time jobs 2
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BLS does not verify the responses of people included in the survey- overstating the extent of joblessness Other people might be employed but engage in illegal activity or conceal employment to avoid paying taxes- these people are counted as unemployed Trends in Labor Force Participation The higher the labor force participation rate, the more labor that will be
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