Question

1. (In one paragraph) Explain how the Bureau of Labor Statistics uses two parts of a fraction to compute the unemployment rate each month. Then describe how the concept of "Natural Unemployment" within a market economy means that the unemployment rate is always above zero (0.0%). And make sure to discuss whether (or not) you think that the United States economy is currently near the "Full Employment" level.

2. Summarize how Frictional Unemployment and Structural Unemployment are forms of Natural Unemployment.

Answer 1

The Bureau of Labor Statistics has clearly defined the unemployed. To be included in the number of unemployed, one must be more than 16 years of age and has been available for full-time work at least for the past four weeks and also the person must be actively looking for job during the same period of time. The labor force consists of the employed and the unemployed as per the Bureau of Labor Statistics. The Unemployment rate is calculated as:

Unemployment Rate = Unemployed / Labor Force.

The natural rate of unemployment is a mix of frictional, structural, and unemployment caused due to wage and price controls. It is always above zero and even at the peak of growth an economy will have this level of unemployment. This happens because a section of workers is always coming in and getting out of jobs for various reasons and may be looking for better jobs even if they have one. This ensures efficient allocation of jobs to the suitable and that is why it is important to have natural rate of unemployment above zero.

As per new study by the Federal Reserve Bank of San Francisco, the trends of 2018 indicate that the US has been able to operate with the low rates of natural unemployment and argues that the U.S. labor market is functioning effectively at its full potential.

Frictional unemployment occurs when for it is of voluntary nature as people quit a job to get a better one. Structural unemployment  on the other hand takes place when the skills no longer match the new jobs. This could be the case of obsolescence of the skills over a long period of time as economy grows with time. As the reasons behind both types of unemployment are inevitable they are largely categorized as natural rate of unemployment.