Labor Force and Unemployment - Video Tutorials & Practice Problems

Labor Force and Unemployment

tracking unemployment is an important measure when we're gauging a nation's productivity. Let's check out some important calculations when it comes to unemployment. So we're gonna be tracking levels of employment. And the first thing we want to be able to do is calculate who is in the labor force, who could have a job, who is employed or who who is unemployed. Let's make these definitions now. So the labor force is the total number of workers and they include the employed and unemployed. So the labor force are all the employed and unemployed. However, there's people who are not in the labor force. So let's go ahead and define what's employed, what's unemployed and who's not in the labor force. So the employed, Well, this is what you would expect. We would have paid employees, we'd have business owners. And this is another important note is that it has full time and part time workers are included in the employed. Okay, so even if you have a part time job, you count, you count towards the employed population, consider the unemployed. Now this is specific as well because unemployed just because you don't have a job, you might not be unemployed, unemployed means that you don't have a job, right? You're available for work though you're seeking a job but unable to find a job. So you have to be seeking a job. Someone who's not looking for a job at all. Your mom's like, hey, go get a job, you need to go get a job and they're like, I'll do it, I'll do it, I'll do it. They're not actively seeking a job. They're not counted as unemployed. They're actually not in the labor force because they're not actively seeking a job. Okay, So unemployed is that's a problem, right? These are people who want to work but can't work because they can't find a job. Okay, So not in the labor force. This is basically if you don't fit into the unemployed or the employed category. So, this is people like a full time student, a homemaker or a retiree, right? A retiree is not looking for work, a full time students not looking for work. Homemaker is not looking for a job either. Right? So what we're seeing is uh they're not included in the labor force at all. So, what what else is not included in the labor force is what we call discouraged workers. These are people who are ready to work, but gave up. They gave up on the job search just because they've been looking for a job and they just they just believe there's nothing out there for them, there's no job available. So they're discouraged. They're they're actually not included and unemployed because of this seeking a job requirement, right? If they've given up on seeking a job. Well, they're not in the labor force anymore. So here are some important calculations and you're gonna get all sorts of practice using these uh using these formulas here, but you're gonna want to be aware of how to calculate all of these because you can easily be asked on the test. They'll give you some numbers and say, what is the labor force, calculate the unemployment rate, calculate the labor force participation rate, calculate the employment to population ratio. These are all I've seen test questions on all of these all the time. Okay, so let's go ahead and go through each of them. First. We've got the labor force, just like we said, this is the employed and unemployed population, right? So remember we have employed unemployed and not in the labor force. So there are adults that are not in the labor force. However, when we're talking about just the labor force, it's the employed and unemployed. So the unemployment rate, this is important right here, the unemployment rate, this is where we take that labor force, everyone who's in the labor force and we say what percentage of them are unemployed. Okay, the labor force participation rate. So this tells us out of all of the adult population, everyone that could be in the labor force, how much of them, how many of them are actually in the labor force? So we take the labor force divided by the total adult population. Okay, So you might expect, you know, if there's 100,000 out of a million? Well, that's pretty small, let's say uh Maybe something like 600,000 out of a million. Right? That would tell us that 600,000 are in the labor force, they're either employed or unemployed out of the million adults in that society. Right? So that would be 60% labor force participation. And now the employment to population. Well, now we're saying out of all of the adult population, how many of them are employed? Right, Employment to population employed divided by population. So they're all important calculations that you're gonna want to know, I'd say the most important ones that you'll see the most often are these three. Sometimes you'll see the employment to population, but those three definitely come up more often. Cool. Alright, let's take a pause here and let's talk about some problems that come up when we measure unemployment. Alright, let's do that in the next

Problems with Measuring Unemployment

Alright, let's go through some of the problems that come up when we're measuring unemployment. The first one is this discouraged workers. These are workers that were unemployed, but however, have given up on the job search. So what does that do? They were unemployed, They were considered unemployed, but since they've given up on the job search, they're just not even in the labor force anymore. So this leads to an understatement of the unemployment rate. And this could this problem exacerbates even more during recessions during a recession, it becomes even worse because there's a lot more discouraged workers. There's there's a lot of people having trouble finding jobs and there's a lot of discouraged work. Why does this happen? Why is it an understatement of the unemployment rate? Well, let's think about this here, right, They were unemployed, but now we're decreasing the unemployment because they're taken out of unemployed and they're put as discouraged workers, so they're not even in the labor force anymore. So we're decreasing that the the amount the true amount of unemployed because they have given up on the job search because no jobs are available, although they would probably still like to work. Right? So that's going to understate our unemployment rate there when we've got more discouraged workers. The next problem here, we we find when we measure unemployment, is that the idea of part time workers, So part time workers are counted the same as full time workers, right? When we said, what counts as employed, it's part time or full time jobs are counted as employed, leading to a partial understatement as well. Again, we're going to understate the unemployment rate here. And why is that? Well, there are part time workers that would prefer a full time job. They just can't find one. They they're settling for a part time job because they can't find full time work. In the meantime they'll take the part time job. So there might be some obviously there are part time workers that want part time jobs, but there are many that would prefer a full time job. And those people are what we call Underemployed. So this underemployment that's people who work part time because they cannot find full time jobs. Okay, so they're working part time because they can't find a full time job. They're underemployed. And we could say that that's messing up with the that messes up the unemployment rate. That makes it look better than it is. Right? We're saying, hey, these people are employed, although they only have a part time job when they want a full time job. And last but not least, is that survey results are not always truthful when they're when they're gathering this information about unemployment. Well, they're surveying people, they're asking them do you have a job, are you looking for work? What people may may lie. Right, And this may distort the unemployment rate as well. So let's look at a couple examples here. First, a person may claim to be looking for work just to remain eligible for unemployment benefits. Right? You get unemployment from the government when you've been, let's say you've been laid off at work, you're gonna get unemployment for a certain amount of time. So you'll get checks in the mail, but you may not even be looking for a job. You're like, hey, I'm getting this free money from the government. Let me just say I'm looking for a job. So I keep getting these checks. So what's happening? This person is classified as unemployed when in reality they should be classified as not in the labor force, right? Because they're not actually looking for a job, so they shouldn't be unemployed unemployed. Are people who are looking for a job, but can't find one. Right? So that's gonna distort our results there. How does that distort it? Well, it's going to make it look worse in this case, right. It's going to make it look like there's more unemployed people than there actually are, because they should uh they shouldn't be included in the unemployed category. Another example here of the survey results is that a person may claim to be unemployed again, but they're actually involved in an illegal activity such as drug dealing. So a drug dealer might say that they're unemployed because they don't want to tell the government that they're a drug dealer. So again, this person is going to be classified as unemployed when really they should be employed, They have a job. It's just an illegal job. So this is going to distort the information again, right? It's gonna make the unemployment rate look look worse in this situation again, because uh there they say they're unemployed when they actually have a job. Cool. So these are some problems that come up when we're measuring employment. Make sure you get some practice using these formulas up here. Labor force unemployment rate, uh the labor force participation rate especially. And then we will move on to the next topic. Cool, let's do that now.