Students will learn about important labor market statistics that are frequently discussed in the media. An understanding of the unemployment rate and labor force participation rate will be developed through participation in an interactive simulation game.
- 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.
- Apply each of these concepts in an unemployment simulation game.
The news media are full of stories about the unemployment rate. Is it rising? Is it falling? This lesson will help students understand how this important economic statistic is calculated. Other statistics related to labor markets will also be discussed. Also, students will participate in a short simulation game that will reinforce what they have learned about these important economic concepts.
Unemployment game: Instructions for this game are found at the end of the Process section of this lesson.
The Bureau of Labor Statistics: Labor force data are available at this website.
Unemployment Data: Focus on Economic Data Lesson
U.S. Employment and the Unemployment Rate
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?
Focus on Economic Data: Unemployment. This link will provide recent economic data on unemployment.
Focus on Economic Data: Unemployment
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. Ask the students the following questions:
1. Is your retired grandfather unemployed? [No. While he is not working, he is also not looking for work.]
2. Is a woman that stays home with her kids unemployed? [No. While she may not be working outside the home, she is also not looking for work.]
3. A thief serving time in prison lost his job when he was convicted. Is he unemployed? [No. Those serving time in prison are not in the adult population and hence not in the labor force.]
4. An aunt serving in the Armed Forces is posted in Iraq. Is she employed? [No. She is not a member of the civilian labor force because she serves in the military]
5. Is a full-time college student unemployed? [Not unless he or she is not working and looking for a job.]
6. Are any of you unemployed? [Depends on individual situations.]
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. 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) X 100 = 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 the students know how to calculate the Unemployment Rate and the Labor Force Participation Rate, tell them it's time to practice these new skills with a little game. Hand each of your students a card from the Unemployment Worksheet. Tell them they will play the role on their card. Now have the students move around the classroom and interview their classmates to see if they are part of the Labor Force and/or if their scenario applies to the Unemployment Rate. You can have them speak with everyone in the class or, if you have a large class, do a sample. Each student then should calculate the unemployment rate and the labor force participation rate in the classroom. This activity will give you a good opportunity to review the formulas. It may also be an appropriate time to look at current unemployment data for the U.S. economy.
This lesson explains how two well known economic statistics are determined. Students should now understand the basic terms used in measuring the labor market. They should also 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. [The labor force participation rate drops, since these workers have left the labor force.]
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. [The labor force drops by two million.]
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 unemployment rate drops since the percentage drop in the number of unemployed is greater than the percentage drop in the labor force.]
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? [146.8-138.6=8.2 million unemployed. (8.2/146.8) X 100 = 5.6%]
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? [Of 206 million, 67 percent, or 138 million]
- Challenge Question: If 85 million adults are not working, what is the unemployment rate? [Of the 206 million adults in the population, 138 million are in the labor force. The population (206 million) minus the number in the labor force (138 million) gives the number of people outside the labor force who are not working (68 million). The statistics given say that 74 million adults are not working; thus 74 million minus 68 million gives the number of people in the labor force who are not working (6 million), which is the number that represents the unemployed. The unemployment rate is the percentage of the labor force (not the population) that is unemployed. The unemployment rate is equal to the number of people counted as unemployed (6 million) divided by the labor force (138 million), expressed as a percentage (4.3 percent).]
Have the students 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. Ask the students to consider why the unemployment rate in your area is higher or lower than the rate in other parts of the country.
Have the students find the U.S. unemployment rate and labor force participation rate for years in the 1960s, 1970s, 1980s, 1990s, and the current decade. Have a discussion about how these have changed. For example, why was the unemployment rate high in the 1970s [discuss the impact of the oil shocks on the economy] and what has happened to the labor force participation rate over time? [It has increased because more women have joined the workforce].
Last, ask 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).
“I am interested in trying this activity but where are the instructions for the game that goes with the worksheet? [EconEdLink: The instructions for this game are found in the last paragraph of the "Process" section of the lesson. Thank you for your comment.]”