Introduction to Macroeconomics

Chapter 6. Unemployment
and the Labor
Market
1. Employment
-
Unemployment
A low unemployment rate is one of the primary goals of
macroeconomic policy. While unemployment can
be disastrous for individuals, the unemployment
rate is also a key indicator of overall economic
performance. An economy with a high unemployment rate is not
operating on its production possibilities
curve. The economy's resources are being underutilized and the
economy is operating below its potential.
In this chapter we will review how unemployment is measured
and how we can relate that measurement
to the performance of the macroeconomy.
A.
Measurement
1.
Employment Surveys
Collection of U.S. unemployment statistics began during World
War II to identify
areas
where labor market imbalance was created as a result of an
inadequate labor supply,
materials shortages, and transportation difficulties. After the war,
emphasis was placed
on identifying areas of labor surplus (high unemployment).
Labor force and un
employment statistics are obtained from the Current Population
Survey (CPS). The CPS is a monthly survey, conducted by the
Bureau of the Census, of
about 50,000 households representing the
civilian noninstitutional population
.
Respondents are interviewed t
o obtain information about the employment status of each
member of the household 16 years of age and over. Each person
is classified into one of
three categories based on their status during the calendar week,
Sunday through
Saturday, which includes the 12
th day of the month (the "reference week"):

Employed

Unemployed

Not in the work force
The CPS provides comprehensive data on the labor force, the
employed, and the
unemployed, classified by such characteristics as age, sex, race,
family relationship,
marit
al status, occupation, and industry attachment. The survey also
provides data on the
characteristics and past work experience of those not in the labor
force.
Figure 6
-
1. Average annual U.S. unemployment rates.
Data Source
: U.S. Dept. of Labor, Bureau of Labor Statistics
(http://www.bls.gov/)
Additional unemploy
ment data is obtained from state unemployment insurance
programs
and the monthly Current Employment Statistics (CES) Survey.
The CES survey is