The population is made up of people in the labor force and people who are not in the labor force. The labor force is made up of people who work and people who are unemployed. The labor force participation rate is the number of people in the labor force divided by the total working-age population. The unemployment rate is the percentage of the labor force that is unemployed. Various types of unemployment require different short-term or long-term policy responses. While unemployment rates vary cyclically over time, labor force participation rates follow longer-term trends. Okun's law posits a relationship between changes in the economic growth rate and changes in the unemployment rate.
At A Glance
- The labor force is the total number of working-age people in a population who are able and willing to work.
- The labor force participation rate is the proportion of the total working-age population that is working or unemployed.
- The unemployment rate is the proportion of the labor force that is not currently working.
- The main types of unemployment are frictional unemployment, cyclical unemployment, seasonal unemployment, structural unemployment, and technological unemployment.
- While the unemployment rate tends to vary cyclically, the labor force participation rate tends to follow longer-term trends.
Okun's law reflects the idea that there is a regular relationship between changes in a country's unemployment rate and changes in its economic growth rate.