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The lesson summarizes the content of the March 7, 2008, U.S. Department of Labor, Bureau of Labor Statistics, announcement of the unemployment rate and employment data for the month of February 2008. The meaning and importance of the data are discussed. Students consider the implications of the data for the economy and themselves. Exercises are included for reinforcing knowledge of the concepts.

KEY CONCEPTS

Costs, Costs of Production, Economic Growth, Factor Endowments, Full Employment, Labor, Labor Force, Labor Market, Macroeconomic Indicators, Production, Productivity, Trade-offs among Goals, Types of Unemployment, Unemployment, Unemployment Rate

STUDENTS WILL

  • Review the most recently reported U.S. employment and unemployment data.
  • Determine the changes in U.S. employment and unemployment from January, 2008, to February, 2008.
  • Identify the recent patterns of changes in employment and unemployment in the U.S. economy.
  • Determine the factors that influenced the reported unemployment rate and implications for the future of the U.S. and world economy.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

The lesson summarizes the content of the March 7, 2008, U.S. Department of Labor, Bureau of Labor Statistics announcement of unemployment rates and employment data for the month of February, 2008.

The purpose of this focus on economic data is to review the unemployment and employment data, to provide interpretations of the significance of the changes in recent to more current conditions, and to discuss a number of related economic concepts. The lesson ends with exercises for students and activities that teachers can use in classrooms.

This focus on economic data offers an opportunity to enhance our understanding of the relevance of the announcements and the causes and consequences of one of the more important challenges economic policymakers face.

Employment and Unemployment Data: Reported by the BLS, March 7, 2008

  • The U.S. Unemployment Rate was 4.8% in February 2008, a decrease of 0.1% from January 2007.
  • The number of unemployed persons remained about the same at 7.38 million.
  • Non-farm payroll employment decreased by 63,000 to 137,993,000 in February.
  • The labor force participation rate declined 0.2 percent in February to 65.9 percent.
  • The number of persons categorized as 'not in the labor force' increased by 644,000 in February.

MATERIALS


Key Economic Indicators

as of March 7, 2008

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in January, 2008, before seasonal adjustment. The January, 2008, CPI level of 211.080 was 4.3 percent higher than in January, 2007.

Employment and Unemployment

The U.S. Unemployment Rate was 4.8% in February, 2008, a decrease of 0.1% from January, 2008. There were a total of 7.4 million unemployed people in February, 2008.

Real GDP

Real gross domestic product increased at an annual rate of 0.6 percent in the fourth quarter of 2007.

Federal Reserve

The Federal Reserve Open Market Committee lowered the target federal funds rate in two steps in January, 2008, by a total of 1.25% to 3.0%.

PROCESS

The focus on economic data summarizes the content of the March 7, 2008, U.S. Department of Labor, Bureau of Labor Statistics announcement of unemployment rates and employment data for the month of February, 2008.

[Note to teacher: Each focus on economic data describes the most current data and trends and expands expectations of student understanding. In this case, policy options are discussed. The question of the beginning of a recession in the U.S. is discussed.

Click here if you wish to use the following larger versions of the graphs and tables from this lesson for overhead projection or handouts in class.]


The headline in the March 8, 2008, New York Times read, 'Sharp Drop in Jobs Adds To Grim Economic Picture.' The story went on to say that the February employment numbers confirmed the 'worst fears of consumers, investors and Washington officials...new evidence of falling employment and a likely recession.' What were the data that concerned the New York Times and policy makers?

The unemployment rate was slightly down. That sounds like good news. But, the total number of jobs in the economy decreased, the number of people in the labor force decreased and the labor force participation rate was down. It was those actual numbers of jobs that are creating concern about an economic downturn, possibly a recession.

Bureau of Labor Statistics Announcement: 'Employment Situation Summary', March 7, 2008

'Nonfarm payroll employment edged down in February (-63,000), and the unemployment rate was essentially unchanged at 4.8 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment fell in manufacturing, construction, and retail trade. Job growth continued in health care and in food services. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.'

Unemployment (Household Survey Data)


'The number of unemployed persons (7.4 million) and the unemployment rate (4.8 percent) were essentially unchanged in February. Over the month, the unemployment rates for adult men (4.3 percent), adult women (4.2 percent), teenagers (16.6 percent), whites (4.3 percent), and Hispanics (6.2 percent) showed little or no change. The jobless rate for blacks fell to 8.3 percent, in line with the average rate for 2007. The unemployment rate for Asians was 3.0 percent, not seasonally adjusted.'

Total Employment and the Labor Force (Household Survey Data)

'Both the civilian labor force, at 153.4 million, and the labor force participation rate, at 65.9 percent, declined in February. Total employment (146.0 million) and the employment-population ratio (62.7 percent) were little changed over the month.'

Link to the full BLS 'Employment Situation Summary announcement: www.bls.gov/news.release/empsit.nr0.htm

U.S. Employment Data


In the United States in February, 2008, non-farm employment totaled 145,993,00 people. 7.38 million people were unemployed. The total of employed and unemployed person equals the labor force. The labor force participation rate (labor force as a percent of the civilian noninstitutional population) was 65.9 percent in February, 2008.

[Note to teacher: Included in these calculations are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.]


For the purpose of determining employment and unemployment data, the BLS definition of 'employment' is:

'Employment is the total number of persons on establishment payrolls employed full or part time who received pay for any part of the pay period that includes the 12th day of the month. Temporary and intermittent employees are included, as are any workers who are on paid sick leave, on paid holiday, or who work during only part of the specified pay period. A striking worker who only works a small portion of the survey period, and is paid, would be included as employed under the CES definitions. Persons on the payroll of more than one establishment are counted in each establishment.'

The BLS measurements 'exclude proprietors, self-employed, unpaid family or volunteer workers, farm workers, and domestic workers. Persons on layoff the entire pay period, on leave without pay, on strike for the entire period or who have not yet reported for work are not counted as employed. Government employment covers only civilian workers.'

Each month the Current Employment Statistics (CES) program of the BLS surveys about 150,000 businesses and government agencies, representing approximately 390,000 individual work sites, in order to collect industry data on employment, hours, and earnings of workers on nonfarm payrolls.

There are two survey methods. The household survey and establishment survey both produce sample-based estimates of employment and both have strengths and limitations. The establishment survey employment series has a smaller margin of error on the measurement of month-to-month change than the household survey because of its much larger sample size. However, the household survey has a more expansive scope than the establishment survey because it includes the self-employed, unpaid family workers, agricultural workers, and private household workers, who are excluded by the establishment survey. The household survey also provides estimates of employment for demographic groups.

The Unemployment Rate


The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by labor force. The labor force is the sum of the number of people who are unemployed and the number of people who are employed. See the current labor force calculation in Table 1.

An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, individuals who choose to not work, retirees and those in institutions are not in the labor force, and therefore not counted in the unemployment rate.

Table 1: Calculation of the Unemployment Rate (Description)

Table 1: Calculation of the Unemployment Rate Description

Total civilian population   232,810,000*   (excluding those under 16, members of the military, and persons in institutions)
- Not in Labor force  

79,436,000**

  (retired, students, individuals choosing not to work)
= Labor force  

153,374,000

  (total population minus those not in labor force)
- Employed   145, 993,000   (individuals with jobs)
= Unemployed   7,381,000***   (individuals without a job and actively searching)

 

Unemployment Rate =

7,381,000 divided by 153,374,000

= 4.8%

[NOTE:

* Excluding those under 16, members of the military, and persons in institutions.
** Retired, students, individuals choosing not to work.
*** Individuals without a job and actively searching for work.]

Employment and Unemployment Data Trends

Unemployment rates had been somewhat steady in the last quarter of 2007, increased by 0.3% in December, but remaining essentially the same as in January. The previous three months of 2007 and January, 2008, had experienced unemployment rates between 4.7 and 4.9 percent. The February rate was similar to the 2005 average rates, but still below the 2004 average rate of 5.5%.

The trend from the beginning of the 1990s to the 2001 recession were a decrease in unemployment and an increase in employment. Figure 1 shows the rises in unemployment associated with the recession in 1990 to 1991 and the recession of 2001 with an almost decade long fall in unemployment in between. Unemployment rates continued to increase after the 2001 recession, as the economy only slowly recovered.


At its low in December 2000, the unemployment rate equaled 3.9 percent. From March 2001 to the summer 2003, the trend was generally one of increasing unemployment rates and decreasing employment. Unemployment rates since reaching a high of 6.3 percent in June of 2003 slowly and relatively steadily decreased to the current levels. See Figure 2.

Unemployment rates over a longer period are shown in Figure 3. As you can see, unemployment rates are currently quite low. They did go below 4 percent at the end of the 1990s, but we would have to back to the 1960s before we find unemployment rates as low as they currently are. Figure 3 also shows the high levels reached in recessions in the 1970s and early 1980s recessions of over 8 and 10 percent.


Figure 4 shows that growth in employment slowed in the last part of 2000 and stopped in March of 2001. Employment decreased in all but six of the months from the beginning of the recession in March of 2001 to September of 2003. Finally in September of 2003, employment began to grow and had continued to grow since, until February, 2008.

Figure 5 shows the monthly change in employment. If the same percentage of adults are to be employed, jobs and employment need to grow by between 125,000 and 150,000 jobs per month. Note the decrease of 63,000 jobs in February, 2008.

Increases in employment over the last four months of 2007, were encouraging, even though they were decreasing in size. The employment decrease in February, 2008, is further evidence of an economic downturn. Be cautious about making generalizations from any one month's figures. In any case, the number of jobs must increase each month by at least the same as the increase in the adult population or the labor force in order to sustain the employment level.

Relevance of Unemployment Announcements

The unemployment announcements receive headline treatment almost every month. Changes are significant indicators of national economic conditions and have relevance to every local community as unemployment has significant costs to the individuals who are unemployed and to the entire community and the U.S. economy.

Changes in levels of employment are also included in the announcements and often receive less attention than the unemployment rate. However, the employment data are equally, perhaps even more, important indicators of the direction of the U.S. economy.

Announcements of increases in employment have been receiving increased attention. From the recession in 2001 through the year 2004, the economy had not generated sufficient numbers of new jobs to provide new labor market entrants with jobs.

Distribution of Unemployment

Unemployment varies significantly among groups of individuals and parts of the country. Table two shows the February, 2008, unemployment rates for several groups, with unemployment rates ranging from 4.2 for adult women to 16.6 percent for teenagers.

Table 2: Unemployment Statistics
by Gender, Race and Age (February 2008)
All Labor Force 4.7%
Adult Men 4.2%
Adult Women 4.1%
Whites 4.2%
Blacks/African Americans 7.4%
Hispanics 6.1%
Teenagers 15.2%

In February, the unemployment rate decreased by 0.1 percent for five groups; all workers, adult men, adult women, whites, and Hispanics. The rate decreased by .9 percent for African Americans and decreased by 1.4 percent for teenagers. Most major worker groups had experienced increases in their jobless rates since the beginning of 2007. One very significant change in February was the increase in the size of the group that is not in the labor force by 644,000. The size of this group had been somewhat stable over the past year.

Explanations of differences in unemployment rates among groups of individuals and parts of the country are generally due to differences in economic conditions, education levels, skills and experience, and discrimination.

Note that the unemployment rate for African Americans seemed to decrease significantly (.9%). This, in fact, reflects a lower level of labor force participation. The labor force participation rate among African Americans decreased from 63.3 percent to 62.9 percent. The change in the unemployment rate may be more accurately explained by the lower participation rate than the increase in employment.

These are several potential explanations for the increase in the number of people not included in the labor force. About 1.6 million persons were 'marginally attached' to the labor force in February. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks pre- ceding the survey.

Among the marginally attached, there were 396,000 'discouraged' workers in February, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them.

The other 1.2 million persons marginally attached to the labor force in February had not searched for work in the 4 weeks preceding the
survey for reasons such as school attendance or family responsibillities

Industry Employment Trends
Establishment Survey Data from the March 7, 2008, Announcement


Total nonfarm payroll employment was down by 63,000 in February, with private-sector employment declining by 101,000. Nonfarm payroll employment was little changed in December (41,000) and January (-22,000). Over the month, job losses occurred in manufacturing, construction, and retail trade. Health care and food services continued to add jobs.

Manufacturing

Manufacturing employment continued to decline in February (-52,000), bringing losses over the past 12 months to 299,000. Most of the February decline was concentrated in durable goods manufacturing, as motor vehicles and parts (-13,000), furniture and related products (-6,000), and wood products (-5,000) lost jobs. Within nondurable goods, employment fell in printing and related support activities (-5,000).

Construction


Employment in construction decreased by 39,000 in February, and has fallen by 331,000 since its most recent peak in September 2006. During this period, residential specialty trades lost 209,000 jobs, while residential building lost 137,000 jobs.

Retail Trade


In February, employment in retail trade declined by 34,000. Job losses occurred in department stores (-11,000), building material and garden supply stores (-7,000), and automobile dealers (-6,000). Wholesale trade employment edged down in February, with the durable goods component declining by 9,000.

Professional and Business Services


Professional and business services employment was little changed for the second month in a row; job gains had averaged 26,000 per month in 2007. In February, temporary help services lost 28,000 jobs; employment in the industry has declined by 117,000 since the most recent peak in December 2006.

Financial Services


In financial activities, credit intermediation employment continued to decline and has fallen by 116,000 since a peak in October 2006. In February, real estate employment also continued to trend down; since June 2006, the industry has lost 34,000 jobs.

Health Care

Health care employment continued to grow in February (36,000). Within health care, over-the-month job gains occurred in hospitals (17,000) and in ambulatory health care services (15,000), which includes offices of physicians. Over the past 12 months, health care has added 360,000 jobs.

Food Services

Food services employment continued to trend upward in February. From November through February, food services added an average of 12,000 jobs per month, compared with an average gain of 28,000 jobs for the 12-month period ending in October.

The Costs of Unemployment


There are significant personal costs to unemployment and these are the easiest to understand. Unemployed workers often do not have the income to support themselves or their families. The stress of being unemployed is reflected not only through the financial challenges of paying regular ongoing bills, but also through increases in alcohol and drug abuse, marital problems, and criminal activity among those who are unemployed.

State and federal governments reduce the personal financial cost of being unemployed through unemployment compensation provided to many unemployed workers. Because most workers pay the taxes that fund the unemployment compensation, the cost of being unemployed is spread among taxpayers, instead of having the entire burden fall on the unemployed workers alone.

Increases in unemployment also mean that the economy is wasting an important scarce resource – labor. Real GDP is less than it otherwise could be and that additional output is lost forever. If more individuals had been employed, production of goods and services would have been higher. Average standard of living is lower as a result of an increase in unemployment. Standard of living is generally defined by per capita GDP or per capita income. If incomes or output rises faster than the population, individual workers will have more income or can purchase more goods and services, on average.

Types of Unemployment

There are three types of unemployment, each of which describes the particular circumstances of the individual and their employment situation.

Frictional unemployment
is temporary unemployment arising from the normal job search process. Frictional unemployment helps the economy function more efficiently as it simply refers to those people who are seeking better or more convenient jobs and those who are graduating and just entering the job market. Some frictional unemployment will always exist in any economy.

Structural unemployment
is the result of changes in the economy caused by technological progress and shifts in the demand for goods and services. Structural changes eliminate some jobs in certain sectors of the economy and create new jobs in faster growing areas. Persons who are structurally unemployed do not have marketable job skills and may face prolonged periods of unemployment, as they must often be retrained or relocate in order to find employment.

Cyclical unemployment is unemployment caused by a drop in economic activity. This type of unemployment can hit many different industries and is caused by a general downturn in the business cycle. Lower demand for goods and services reduces the demand for workers.

At the levels of unemployment that economists consider to be the lowest possible sustainable levels (discussed below), the only unemployment that exists is due to friction in labor markets and structural changes in the economy.

Full Employment

Economists define the approximate unemployment rate that is 'full employment'. If unemployment falls to a very low rate, there will be upward pressure on prices. If unemployment rises to a very high rate, there will downward pressure on prices or prices will remain steady. In the middle is a level, or more likely a range, where there is not pressure on wages to rise or fall. That is the full employment rate of unemployment.

Economists do not agree or know for certain what that rate is and it does change over time. A consensus estimate is that the full employment rate of unemployment is currently between 4.5 and 5.0 percent of the labor force being unemployed.

A Note on the Revision of Seasonally Adjusted Household Survey Data


Short-run trends in labor force are influenced by seasonal and periodic fluctuations associated with recurring events such as weather, holidays, and the opening and closing of schools. Seasonal adjustment eliminates the influence of these fluctuations and makes it easier for users to observe fundamental changes in the level of the series, particularly changes associated with general economic
expansions and contractions.

At the end of each calendar year, BLS updates the seasonal adjustment factors for the labor force data derived from the Current Population Survey (CPS), or household survey. This past year, seasonally adjusted data for January 2007-November 2007 were subject to revision. The rates were unchanged in 7 of the 11 months in 2007 and changed (increased) by one-tenth of a percentage point in the months of June, July, August and October.

For a more full explanation of the seasonal adjustment process, see the BLS article at www.bls.gov/cps/cpsrs2008.pdf .

Are we in a recession?


The 'official' designation of a recession in the United States is determined by the seven members of the Business Cycle Dating Committee of the National Bureau of Economic Research. This committee tracks business cycles and identifies the dates of the peaks and troughs that define recessions or expansions.

According to the NBER, a recession is a 'significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.' Commonly, people refer to a recession as a period of decline of at least two quarters (six months.) This is only a 'rule of thumb' and is not the rule guiding the NBER committee.

The most recent 'official' recession was in 2001. In November, the committee determined that the peak of economic activity had occurred in March, 2001. The March, 2001, peak was the end of an expansion that began in March 1991 - almost ten years exactly in length. The 2001 recession lasted about eight months, sorted than the recent average recession length of eleven months.

The Business Cycle Dating Committee considers real GDP as the best measurement of aggregate economic activity. In addition, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs. The committee looks at two monthly measures of activity across the entire economy: (1) personal income less transfer payments and (2) employment, and indicators industrial production and sales of the manufacturing and wholesale-retail sectors.

Do these and other recent data indicate a 'significant decline in economic activity spread across the economy, lasting more than a few months'? The NBER committee may not really known this for several months. The depend on accurate and meaningful data that may constantly revised. What do you think?

ASSESSMENT ACTIVITY

Have the students click the start button below to complete an online interactive quiz about the Unemployment Rate Lesson.

Next, have the students complete the following extension question on the interactive notepad provided for them on the student version of the lesson.

 

  1. Why is the unemployment rate alone an inadequate indicator of the health of the economy? [Possible answers: The unemployment rate is determined only by the number unemployed people and the size labor force. If the actual number of jobs and/or the size of the labor force has decreased, the overall level of economic activity has probably decreased. In February, 2008, the unemployment rate decreased, but the number of jobs in the economy decreased.]

CONCLUSION

Review with your students the following employment and unemployment data for February, 2008.

  • The U.S. Unemployment Rate was 4.8% in February 2008, a decrease of 0.1% from January, 2008.
  • The number of unemployed persons remained about the same at 7.38 million.
  • Non-farm payroll employment decreased by 63,000 to 137,993,000 in February.
  • The labor force participation rate declined 0.2 percent in February to 65.9 percent.
  • The number of persons categorized as 'not in the labor force' increased by 644,000 in February.

Discussion:

  1. Do you think this employment data is evidence that the United States is in a recession?

    [This may be evidence that the economy slowed during the previous period or is in a period of slowdown. Whether or not it means that the U.S. is in or near a recessionary period is inconclusive. Confidence in the health and future of the economy may worsen. Consumers my be less positive about their future income and producers my be less likely to make investments in future production. Unemployment reduces income tax revenues and increases the cost of programs, such as unemployment compensation.

    When incomes are reduced by increased unemployment, consumer purchasing will decrease. This may have a ripple effect in the economy, affecting the demand for labor by companies that produce goods for consumers. If output falls, demand for other productive resources by producers will likely decrease.]

  2. Should 'marginal workers' or those some call the 'underemployed' be counted as unemployed? If so, is this a more meaningful measurement of real unemployment?

    [The students' responses may vary. If a person is not working full time or not working up to their level of education and/or training, the economy may not be achieving its potential output (full employment GDP). Not counting these people may underestimate the real impact of unemployment in the economy. Does it matter if a person is working 40 hours a week or 30 hours a week? It certainly matters to the person.]

EXTENSION ACTIVITY

Classroom Discussion Activity

Go to the BLS website and check the Local Area Unemployment Statistics for your city and state (www.bls.gov/data/home.htm ). have the students answer the following questions using the data from the website.

  1. Is unemployment in your area higher, lower, or roughly the same as the national average?
  2. What factors contribute to your area's unemployment rate?
  3. Which industries have expanded?
  4. Which industries have contracted?

Answers will vary. Review the BLS local and state data to answer student questions.

[Note to Teacher: A good idea is to ask students to talk to your local or state employment office and report on local and state trends. The local or state employment office should be about to explain why your local statistics differ from the national data.]

Will the recent changes affect students hunting for part-time jobs?