Economics for Educators
Lesson 12 and 5E Model
Revised Edition
Robert F. Hodgin, Ph.D.
Texas Council on Economic Education
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Economics for Educators, Revised
Copyright © 2012
Texas Council on Economic Education
All Rights Reserved
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Lesson 12: Employment and Unemployment
Employment and Unemployment
Work is essential to solving the economic problem for the individual and for society. Though the very young, the old, the infirm, the
incarcerated and those in military service are excused from private market work, those in the workforce toil to produce the goods
consumed by those groups, as well as for their own consumption. Human effort marks the beginning of the circular flow of economic
activity.
In a market-based society, sales of product fashioned through human application generate the earnings to sustain their collective
makers. Those persons working are employed. Persons temporarily not working but seeking work are unemployed. Economists
focus on the unemployed because their status reflects a loss of value to society and the affected individuals. Economists use
carefully-crafted definitions to measure and assess employment and unemployment.
Labor force components
9 Total population–all persons in the society
Less: persons under 16 years or institutionalized
ƒ Equals: the non-institutional population
o Less: those serving in the armed forces
ƒ Equals: the civilian non-institutional population
o Less: persons not in the labor force (neither working nor seeking work)
ƒ Equals: Civilian Labor Force (CLF) —total number of workers over 16
years of age who are either employed or unemployed.
o Employed–persons in the labor force who have a fulltime or part time job.
o Unemployed–persons without a job who are actively seeking work and are available for work.
o Unemployment Rate–the number of unemployed persons divided by the labor force count.
o Labor force participation rate–the civilian labor force divided by the adult population 16 to 64 years old
US Labor Force Data
Year Labor Force
Employed
2009
153,172,000 137,960,000
2010
153,690,000 139,206,000
Source: www.BLS.gov
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Unemployed
15,212,000
14,484,000
Rate
9.9%
9.4%
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Employment figures are dynamic. Unemployed workers seeking work continue to be classified as unemployed. If a person quits
seeking work they drop out of the labor force altogether. Perhaps they should be labeled as not employed to distinguish them from
the unemployed. The official unemployment definition is narrow in terms of time and job-seeking actions. Many more persons are
actually without market work than unemployment figures suggest.
Another missing element in labor statistics is a definition for under-employment; those persons working at jobs that underutilize their
skills or training. More puzzling is the situation where some people earnestly claim they want a job but make no real effort to find
one. That last thought suggests that expectations influence the search for market work. If you had recently lost your job and were
receiving unemployment benefits, what is the minimum wage you would accept in a new job? When your unemployment benefits ran
out would you change the minimum wage you would accept in a new job? What other requirements would you impose on a new
position? These and other relevant questions combine aspects of relatively impersonal labor market dislocations with personal job
search criteria.
Natural Rate of Unemployment
In their quest to understand the nature of unemployment in the macro economy, most economists agree on this operational definition.
Natural rate of unemployment—the rate around which the unemployment fluctuates, in a healthy economy. For the US
economy, the natural rate lies between 4% and 6% of the labor force.
That idea is useful in advanced economies, where unemployment can never be zero, some workers will always be between jobs.
Reasons for job change may be personal, such as a voluntary return to school for retraining; seasonal, like new home construction,
or cyclical, driven by the ups and downs of whole industries. As long as the deviations from the natural unemployment rate are not
too large or prolonged, government in a market-based economy chooses not to actively interfere with the labor market. Government
does offer some buffers for those temporarily out of work such as unemployment insurance, paid for by employers through statebased insurance mechanisms.
“Curing” Unemployment
When the unemployment rate reaches an unacceptably high and sustained level, the government considers some form of policy
intervention. As economists learned during the Great Depression of the 1930s, public spending as a demand side stimulus, even if
financed by public borrowing, can increase total output and reduce unemployment, though not without economic trade-offs.
Another policy-based means to reduce unemployment from the supply side of the economy is to offer job training subsidies for
displaced workers and incentives to employers promising to hire and train newly displaced workers. Job search, seeking the position
that is “right” for the individual, is another aspect of unemployment’s duration. Job searching takes time and can be frustrating. That
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frustration comes largely from lack of good information about the types, pay scale, location and availability of open positions.
Economists recognize that while job search is costly, it is rarely due to a mismatch between supply and demand in the labor market.
Rather, unemployed workers are busily searching for those jobs best suited to them.
Economics of Minimum Wage Laws
US minimum wage laws become a topic for political debate each time the federal minimum wage is increased. The economic reality
of minimum wage legislation is firmly established through many well-crafted studies. When the mandated minimum wage is set
above the market clearing wage rate—the unemployment rate for workers in minimum pay jobs rises.
In the chart above, you can see the two components of the increased unemployment from a higher minimum wage rate. Those jobs
where the value of work lies below the new minimum wage will be laid off—the demand-side market response. The market’s supplyside reveals formerly discouraged job seekers, enticed by the new higher minimum wage, trying to re-join the labor force but unable
to find work.
Workers in minimum wage positions who manage to keep their jobs do get higher pay. Though the higher minimum wage may or
may not sustain a life style above the government defined poverty level. Persons unemployed due to the new minimum wage have
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two choices as they seek gainful employment. They can find other firms who see how their limited skills might offer value exceeding
the new minimum wage, or re-train to gain marketable skills and earn a wage above the federal minimum.
In Sum
9 Civilian Labor Force (CLF) —total number of workers over 16 years of age who are either employed or unemployed
o Employed – persons in the labor force who have a job.
o Unemployed – persons who do not have a job, are actively seeking a job and are available for work.
o Unemployment Rate – the number of unemployed persons divided by the labor force.
o Labor force participation rate – civilian labor force divided by the adult population over 16 years of age.
9 The natural rate of unemployment is that rate around which the unemployment rate fluctuates.
9 Minimum wage economics—increases in the minimum wage also increases unemployment among those holding minimum
pay jobs. Two sides of the unemployment effect:
o Demand side—jobs where the value of the work is less than the new minimum wage the business owner must pay will
be eliminated.
o Supply side—formerly discouraged job seekers will attempt to join the labor force seeking work at the new minimum
wage but will be unable to find it.
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Total population–all persons in the society
Less: persons under 16 years or institutionalized
ƒ Equals: the non-institutional population
o Less: those serving in the armed forces
ƒ Equals: the civilian non-institutional population
o Less: persons not in the labor force (neither working nor seeking work)
ƒ Equals: Civilian Labor Force (CLF) -- total number of workers over 16
years of age (due to US child labor laws) who are either employed or
unemployed. 153,406,000 as of March 2011.
Write the following on the board concerning the US Civilian Labor Force (CLF).
See bold print below.
Have the students give examples of:
x those employed
x those unemployed
x those who are not counted in either. (e.g., someone who has stopped
looking for work)
Ask the students to read the statement on the right.
Have them write this as though it is a mathematical equation. Discuss symbols or
abbreviations for each group in society. Use them in the equation.
Explore
After they have shared their answers, write the statement on the board.
List their responses on the board. (will vary)
Ask students which of their responses from the first question are closest to the
quote and highlight those answers.
After discussing their answers to the above question, write this statement on the
board: The worker’s wage rate is enough to overcome the value of not working for
those individuals in the labor force. Ask them what that means and what their
thoughts are on it. Ask for examples.
Ask why people work when no one directly makes them do so?
Engage
Lesson 12: Employment and Unemployment, page 71
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Unemployed–persons without a job who are actively seeking work and are
available for work. 13,542,000
Unemployment Rate–the number of unemployed persons divided by the
labor force count. 8.82% (Calculate!)
Labor force participation rate–the civilian labor force divided by the adult
population 16 to 64 years old
+ unemployed = Civilian Labor Force]
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Email: [email protected] * www.economicstexas.org
[Employed
[139,864,000 + 13,542,000 = 153,406,000]
Then note that the total of the employed PLUS the unemployed must always
sum to equal precisely the civilian labor force count! Have the students check
to make sure it does.
Unemployed–persons without a job who are actively seeking work and are
available for work (during the week of the survey taken by the BLS). Note
the following statistic on the board: 13,542,000 Unemployed persons in the
US, March 2011.
Employed–persons in the labor force who have a fulltime or part time job.
Note the following statistic on the board: 139,864,000 employed persons in
the US, March 2011.
Should a person who is wants to work full time but can only find part time work or
a job that requires fewer skills than they have be considered employed? Why or
why not?
Who do you think is left out of the statistics? Employed–persons in the labor force
who have a fulltime or part time job. Note the following statistic on the board:
139,864,000 employed persons in the US, March 2011.
Who is included in the Civilian Labor Force?
What are the statistics for employed and unemployed?
Ask what it means to be “unemployed”?
What does it mean to be employed?
Explain
o
o
o
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What is the unemployment rate today?
Who is included in the unemployment rate? Give three examples.
Who is not included in the unemployment rate?
Who is considered part of the labor force? Give three examples.
Evaluate
Answers will vary but should be based on current economic conditions.
Students can compare that information to the current business cycle.
[13,542,000 / 153,406,000] X 100 = 8.82%, the actual figure for March
2011]
Answers will vary. After speculating, tell student the correct answer is the
percentage of the unemployed compared to the civilian labor force.
Look up the most current employment and unemployment statistics. How do they
compare with the statistics given here? To what do you credit the higher
employment or unemployment rates?
Ask how they think the BLS calculates the unemployment RATE?
Extend
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The Texas Council on Economic Education (TCEE) thanks the Council for Economic Education and the
Department of Education Office of Innovation and Improvement for awarding the Replication of Best Practices
Program grant that allowed Economics for Educators, Revised Edition to be written and published.
The Texas Council on Economic Education also thanks six of its major partners whose support allows TCEE to
provide the staff development that utilizes content and skills provided in Economics for Educators.
Helping young people learn to think & make better
economic & financial choices in a global economy.
economicstexas.org
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Email: [email protected]