No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eighteen: The “macro” view of the economy 459 someone has work, but do they have a job if they meet certain conditions. For example, many of you know people that do not work but spend time volunteering. Those individuals have the dignity of God-honoring work, but they are not employed. But they are also not counted as unemployed. Why not? Economists want to understand the percentage of the adult population that wants a job but cannot get one. We are not concerned with those that do not need or want to be in the work force; therefore not every adult without a job is unemployed. If you are retired, you are not considered part of the labor force. If you are a small child, you are not in the labor force. If you work in the home, you are not counted as part of the labor force. We also don’t count anyone as part of the labor force if they are not actively looking for a job. So if an unemployed worker gets discouraged because of no job openings and gives up looking, they are considered not in the labor force as well. So to understand the health of the labor market, we have to consider three categories of people: Employed, Unemployed, and Not in the Labor Force. The sum of those individuals who are employed and unemployed is what we define as the Labor Force. The unemployment rate is equal to the number of people unemployed divided by the labor force, multiplied by 100: Unemployment rate = (# of unemployed/Civilian Labor Force) X 100 There are various measures of unemployment that can be reported, with some measures significantly higher than others. The most common (and what you’ll hear reported in the media) is the U-3 rate, which we have included in our definition. But what if we have a person who is only able to get part time work at 15 hours but would like to work full time? Should he or she be considered as fully employed? The U-3 rate does. However the U-6 rate includes people that are marginally attached (discouraged workers that would like to work but are not looking) and those that are not able to find full-time work. This rate is often significantly higher as we’ll see below. Another important measure of the health of the labor market is the Labor Force Participation Rate . The labor force participation rate measures the percentage of the total adult population that is in the civilian labor force (either employed or unemployed). It’s not a very healthy labor force even if unemployment is officially 2% if the reason is that everyone has given up looking for work because there are no jobs! In the next section we’ll look at the most recent recession and its aftermath to assess the health of the labor market. APPLICATION: EMPLOYMENT POST THE 2007-08 FINANCIAL CRISIS Most recessions have a positive correlation between the depth of the fall and the strength of the recovery: a deep recession tends to have robust growth once recovery occurs, Labor Force Participation Rate: measures the percentage of the total adult population that is in the civilian labor force (either employed or unemployed).