The news media are full of stories about the unemployment rate. Is it rising? Is it falling? This lesson will help you understand how this important economic statistic is calculated. Other statistics related to labor markets will also be discussed. Further, you and your classmates will participate in a short simulation that will reinforce what you have learned about these important economic concepts.
In this lesson students will learn what the unemployment rate is and how it is determined, learn the concept of labor and be able to apply it to this lesson, understand what the labor force participation rate is and how it is determined, understand the following labor force terms commonly used by economists: labor force, discouraged workers, unemployed, employed, and not in the labor force, and apply each of these concepts in an unemployment simulation game.
President Harry Truman once remarked, "It's a recession when your neighbor loses his job; it's a depression when you lose your own." The unemployment rate is perhaps the most widely reported economic statistic in the news. What does this rate actually measure?
Let's start by defining a few concepts that are needed to help us understand the unemployment rate.
- Civilian and Non-institutionalized Adult Population: Everyone 16 years old or older and who is not in the military, not in jail or prison, not living permanently in nursing homes, and not in other "institutions."
- Labor Force (LF): The total number of adult, non-institutionalized civilians who are either working and on a payroll (E) OR are actively seeking work (U). LF = E + U
- Employed (E): The number of adult civilians who are working and on a payroll of some type.
- Unemployed (U): The number of adult civilians who are not working but are actively seeking work.
This is a good place to stop and review. Answer each of the following questions. The class will discuss the responses.
1. Is your retired grandfather unemployed?
2. Is a woman that stays home with her kids unemployed?
3. A thief serving time in prison lost his job when he was convicted. Is he unemployed?
4. Is a full-time college student unemployed?
5. Are you unemployed?
Now we're ready to define the unemployment rate. The unemployment rate, which is reported each month, is equal to the number unemployed divided by the labor force.
Focus on Economic Data: Unemployment. This link will provide recent economic data on unemployment.
Focus on Economic Data: Unemployment.
Labor is defined as physical/manual work contributed to society's goods and services by all the people in the labor force. For example, if 8.2 million people are unemployed in the U.S. and the size of the labor force is 146.8 million people, the unemployment rate is equal to (8.2/146.8)X100 = 5.6%.
How does the U.S. Bureau of Labor Statistics (BLS) actually calculate this rate? It is relatively simple. BLS staff people call 55,000 households on the phone in the adult population each month and ask the person that answers the phone (provided she or he is in the adult population) the following questions: Are you working? If the answer is "yes," that person is not unemployed. If the answer is "no," the next question is "Have you looked for work in the last four weeks?" If the answer to this question is "yes," the person is unemployed.
There is another class of workers who are not working but not looking for work, and therefore not unemployed. Economists call these people discouraged workers. They have, in effect, dropped out of the labor force and are not counted as unemployed.
Another interesting statistic related to the labor force is called the Labor Force Participation Rate. This statistic measures the labor force as a percentage of the adult population. For example, if the adult population has 222.8 million people in it and the labor force size is 146.8 million people, the Labor Force Participation Rate = (146.8/222.8) X 100 = 65.9%.
Now that you know how to calculate the Unemployment Rate and the Labor Force Participation Rate, it's time to practice these new skills with a little game. Each of you will have a role to play on the card your teacher gives you. Now move around the classroom and interview your classmates. You should then calculate the unemployment rate and the labor force participation rate in the classroom.
This lesson explains how two well-known economic statistics are determined. You should now understand some basic terms used in measuring the labor market and be able to calculate the unemployment rate and the labor force participation rate.
Determine the impact on the labor force participation rate if two million formerly unemployed workers decide to return to school full-time and stop looking for work.
Determine the impact on the size of the labor force if two million formerly unemployed workers decide to return to school full-time and stop looking for work.
Determine the impact on the unemployment rate if two million formerly unemployed workers decide to return to school full-time and stop looking for work.
The labor force in the United States has 146.8 million people in it. Of those, 138.6 million are employed. What is the unemployment rate?
Challenge Question: Suppose that the U.S. adult population is 230 million and the labor force participation rate is 67 percent. What is the size of the U.S. labor force?
- Challenge Question: If 85 million adults are not working, what is the unemployment rate?
Log on to the Bureau of Labor Statistics (www.bls.gov ) web page and determine the unemployment rate and labor force participation rate in the United States, the state you live in, and the metropolitan area closest to where you live. Has this rate been rising or falling in recent quarters? Is the unemployment rate in your area significantly different from the one in other parts of the country? What explains these differences?
Last, find the students to find the unemployment rate at various points during the current economic crisis (e.g. August 2008, October 2008, December 2008, February 2009).