Question

describe the trends and fluctuations in the unemployment rate above average and in which periods was it was it below average? describe how the labor force participate rate in the United States changed between 1960 and 2013. contrast natural unemployment rate is not zero and why the unemployment rate fluctuates around the natural unemployment rate. explain why the employment rate affects GDP.

Answer 1

According to the Bureau of Labour Statistics of USA, the unemployment rate in United States was 4.1 at the end of the year 2017. The unemployment rates above the annual average was between the period January-September of 2017. The unemployment rates for the adult men and women aged 20 years and above at the end of the year 2017 was 3.8 and 3.7 respectively. Unemployment rate of the teenagers aged below 20 years during the same period was 13.6. Main reason for youth unemployment in the United States has been job change and temporary jobs. The unemployment duration of the persons in the year 2017 ranged between 1 week to over 27 weeks.

Total number of unemployed persons in December, 2017 was 6,576 in comparison to 7,502 which indicate that employment situation in USA slightly improved in the year 2017. There has been addition of 148,000 new jobs in 2017 especially in Healthcare, mining, construction, manufacturing and FMCG sectors. Total number of persons employed in part time jobs in December, 2017 was 4915. The number of people employed in non-farm sector was 155,000 in December, 2016 and 148,000 in December, 2017. The trend also shows that number of unemployed men and women aged 20 years and above in December 2016 was 237,986 while it was 247,615 in December, 2017.

Between the period 1960-2013, there has been vast change in USA labour force due to several factors such as technological revolution, globalisation and industrial legislations. Changing international trade laws, labour wages and easy accessibility of goods have transformed labour work force participation in United States. There has been major shift in US economy from manufacturing to service sector during 4 decades. Apart from this, changing labour laws restricted trade union movements in the United States and it also weakened the bargaining power of labour force. There has been sharp rise in US population from 180,671 in 1960 to 309,653 in 2010 as per US Census Bureau data. At the same time, the total labour force rose from 69,628 in 1960 to 157,695 in 2010.

Between 1970 to 2010, there has been over 60% increase in female labour force participation in USA while male labour force participation in the same period slightly dipped to 73%. The key reasons for decline in male labour force participation rate was better social security schemes of the federal Government and rising incomes of persons aged 50 years and above.

Natural unemployment occurs in an economy having full scale of employment. The natural unemployment rate in USA has always been between 4 to 5 %. There has been several reasons for unemployment rate in USA such as rise in population, decline in wages, high inflation and changing social security schemes. As in the full employment state, an economy operates around full employment level of output and therefore, unemployment rate in that case tilts around natural unemployment rate.

According to Okun’s law on GDP and unemployment, fall in GDP rate results rise in unemployment rate. In other words, a falling GDP also means falling employment rate. The Okun’s law states that even 1% rise in the unemployment rate results 2% decline in GDP of an economy. Increase in the employment rate raises purchasing power of the people that stimulates different sectors and improves GDP rate of an economy. Low rate of employment decreases people purchasing capacity that brings recession in the market resulting downfall in key sectors such as real estate, manufacturing, construction and others or decline in GDP rate.