Labor Market Participation

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Labor Market Participation

• Presented By Tim, Tyler, Chris, Roland, Dean
• ECO 412-002
• Dr. Robert R. Reed

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Introduction
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• The Labor Market consists of people with jobs,
  people looking for jobs, and businesses
  seeking employees.
• Labor Market Participants are individuals in
  the civilian labor force who are employed, or
  are actively searching for employment.
• People who are not actively seeking employment
  (homemakers, retired individuals) are not
  considered labor market participants.
• Labor Market Participation takes in account both
  employed and unemployed individuals.

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The Labor Force

• Anyone over the age of 16 who is not in an
  institution (prison, mental hospital) or on
  active duty in the Armed Forces is classified as
  a member of the civilian labor force, whether
  they are employed or not.
• A person is classified as unemployed if they do
  not have a job, have actively looked for work in
  the prior 4 weeks, and are currently available
  for work.
• The exception to the labor force criteria are
  individuals over 16 who do not have a job and are
  not looking for one (students, retired workers).

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Types of Unemployment

• Frictional Unemployment is associated with normal
  job turnover.
• Structural Unemployment stems from mismatches
  that occur when workers are trained in one field,
  while jobs are available in another field.
• Cyclical Unemployment occurs with changes in the
  business cycle. Economic slowdown causes demand
  for goods and services to decline, decreasing the
  number of laborers.
• Cyclical Unemployment gets the most attention
  from policymakers.

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What Affects The Labor Market

• Just about everything that happens in the economy
  affects the labor market.
• Changes in the demand for goods and services, the
  size of the population and the minimum-wage rate
  can each have substantial impact on the job
  market.
• A rapid economic growth caused by an increase in
  the demand for goods and services can create a
  myriad of new job opportunities for workers.
• A severe slowdown in the economy, or a recession,
  can have a devastating impact on employment
  opportunities. As demand for many goods and
  services slows, businesses must cut back
  production and often lay off workers.

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Data Collection
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Source Wikipedia
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Labor Force Participants
Source Statistics Bureau
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• This can mean that more people that are actively
  looking for a job are more successful. However,
  in relation to the total population of the United
  States, the percentage of people looking for jobs
  have dropped.

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Population and Labor Force Numbers

• 1996 248,709,873
• 2000 281,421,906
• 2006 299,398,484
• 1996 157,930,769
• 2000 175,607,269
• 2006 180,836,684

Avg Change 9.8
Although the labor force has increased, it has
not kept up with the increase in population
Avg Change 7
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Collection Methods

• Data is collected through a series of modes
  that a survey manager or employer might release.
• These modes include, questionnaires via phone,
  fax, mail, or the internet.

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Labor Force By Characteristics
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Monetary Policy The Labor Market
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• As we have seen and learned, the federal funds
  rate fluctuates due to certain aspects that is
  effecting our economy, one including the labor
  market
• Looking at the recent rates of both employment
  and unemployment, we see how monetary policy
  effects both of them
• But does monetary policy have a direct impact on
  the labor market?

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• The Fed has a great indirect impact on the
  nations labor market
• Monetary policy cannot directly affect the number
  of jobs, but it has a huge impact on the economic
  environment, business activity and eventually,
  the labor market
• The Feds monetary policy directly affects the
  cost and availability of money and credit in the
  economy BUT it only indirectly influences the
  demand and availability of labor

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Federal Funds Rate
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Federal Funds Rate Labor Market Rate
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Labor Market Rate Labor Market Level
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• Dating back to August of 2003, over more than 7.8
  million jobs have been created
• Nearly 2 million jobs have been created over the
  last 12 months
• This being said, the economy has now added jobs
  for the 43rd straight month, keeping the
  unemployment rate low at 4.4 (Mar 2007)

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Job Creation in the Economy
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Policy Recommendation
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Policy Recommendation

• To be able to effectively suggest a policy
  direction for the Federal Reserve, we need to
  review how the federal funds rate has affected
  labor market participation over the last few
  years.

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Policy Recommendation

• So as you can see from the graphs, the labor
  market has continued to trend up regardless of
  the federal funds rate climbing from around 1
  percent in 2004 to the current rate of 5.25.
• This means that jobs are still being created and
  that we can expect to see the labor market grow
  in the coming months.

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Policy Recommendation

• So holding all other factors constant (ceteris
  paribus), we would suggest that the fed maintain
  the current rate of 5.25 percent for the federal
  funds target rate.
• We would also suggest that the fed keep an eye on
  the trend in labor market participation and the
  rate at which the jobs are increasing in the U.S.
  If too many jobs become available then the level
  of income earned could lead to inflation, or the
  possibility that businesses could conduct layoffs
  and lead to cyclical unemployment.

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Study Questions

• Test Your Might!

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Question 1

• Anyone over the age of __ who is not in an
  institution (prison, mental hospital) or on
  active duty in the Armed Forces is classified as
  a member of the civilian labor force, whether
  they are employed or not.
• A. 13
• B. 16
• C. 18
• D. 21
• Answer B. 16

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Question 2

• Data is collected through a series of
  modes, all are included EXCEPT
• A. phone
• B. door-to-door
• C. mail
• D. fax
• Answer B. door-to-door

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Question 3

• For all the groups mentioned, which of the
  following has the lowest percentage of the labor
  force?
• A. Asians
• B. African Americans
• C. Hispanics or Latinos
• D. Other
• Answer A. Asians, 4

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Question 4

• The Feds monetary policy indirectly affects
  the cost and availability of money and credit in
  the economy and it directly affects the demand
  and availability of labor.
• True or False?
• Answer False