Labor market analysis in recovery

It would be helpful for students to know how to calculate the unemployment rate and the labor force participation rate. This exercise requires students to identify who is employed, unemployed, not in labor force, especially discouraged workers, and part time employment due to economic reasons.

It is helpful for an instructor to connect this idea with the US great recession in 2009 and subsequent recovery.

Overview

This activity facilitates how to identify and calculate unemployment and labor force participation, and the understanding of labor market indicators.

Expected Student Learning Outcomes

Students successfully identify data, calculate unemployment rate and labor force participation rate and understand how labor market indicators represent labor market situation.

Information Given to Students

The Simpsons were watching TV news, and they are debating who is right on this issue.

Here is what news is reporting;

Whose comment is correct about the economic situation reported in above news?

A. Homer said "The economy was not recovered in 2010. Look at the unemployment rate! The unemployment rate in 2010 is higher than in 2009."

B. Merge said "More people have jobs in 2010 than in 2009. The economy was better in 2010 than in 2009.

C. Bart said "More people got unemployed in 2010 than in 2009. The economic situation is poor in 2010."

D. Lisa said "More people are engaging in labor market either working or searching for one in 2010. It is a good sign that economy is doing better in 2010 than in 2009."

The unemployment rate lags behind economic activity so that at the very beginning of a recovery there can be an increase in the unemployment rate. That is why it is important to supplement the labor market analysis with labor force participation rate.

Discussion questions;

What is unemployment rate in 2009 and 2010?

What is labor force participation rate in 2009 and 2010?

Who is considered as discouraged workers?

Why discouraged workers are not included in the number of unemployed?

Why more people become unemployed in 2010?

How does labor force participation rate represent the labor market?

What is a lagging indicator?

In 2010, more people are employed and more people are unemployed at the same time. To evaluate the labor market condition, we can see the number of people who are not in labor force, especially focusing on discouraged workers. The number of discouraged workers is smaller in 2010, which means that discouraged workers are now starting to search for jobs As a result, they are unemployed, instead of being in not in labor force. This shows optimism in the labor market. This is backed by labor force participation rate, which ticked up in 2010.

Lastly, the number of part-time workers with economic reasons, i.e. the number of people who were involuntarily taking part time job as there was no full-time job, is decreasing in 2010, and more people are employed full time. This number does not show in unemployment rate (U3), however, it would be captured in U6.

In conclusion, even though unemployment rate went up in 2010, the overall labor market condition is improving.

Above data is from BLS.gov, 2009 and 2010.

B and D are the most informed choices, reflecting best what is happening the US economy. A and C point correctly to changes in labor market statistics, but these indicators do not accurately represent the economic trend.