Data-Exercise-2 Unemployment Rate

Data Exercise 2Insert Name

ECON 201Insert Date

Submitted to: Professor Data Exercise 2Unemployment Rate

Unemployment rate is the total number of labor force that is currently unemployed, or those who do not have a job currently but are actively seeking for employment and are willing to work. Since 1948, the unemployment rate in the United States has been fluctuating from as low as 2.5 percent to about 10.8 percent (Lazear & Spletzer, 2012). The average value of unemployment has been about 5.6 percent. The rate of unemployment can be calculated as seen in the equation below.

Unemployment= (unemployed people/Total labor force)*100%

During the year 2012, more than 63% of all adults were in the labor force; either employed or unemployed. During 2012, the exact percentage of the adults who were in the labor force was 63.7 percent. Unemployment rate accounts for only those who are not employed and are actively seeking for a job. There are those who are not working and are not seeking employment. These are considered to be out of labor force. A significant number of United States’ population is out of the labor force.

In 2012, among the total number of people aged 16 years and above, 243.2 million, only 154.9 are in the labor force and among them, 142.4 million are employed. The unemployed in 2012 were 12.5 million. This meant that the remaining population, about 88.3 million were out of labor force according to the bureau of labor statistics.

The rate of unemployment keeps on fluctuating but never goes to zero. It is in rare cases where the rate can go below 3 percent. It only stays low for a very short duration then goes up again. The timing of the rising and falling of unemployment in most cases matches the timing of the upswings and downswings of the overall economy. It is almost obvious that during depression and recession, the rate of unemployment is high while during the growth period of the economy, the unemployment rate is lower. There is no significant upward or downward trend in unemployment is apparent.

Unemployment rates have also been mapped in terms of ethnic groups. Although unemployment has been fluctuating for all the groups in United States, some groups have experienced more unemployment rates than others. The plots of the unemployment rates for all the groups have been proportional although always, the whites have been experiencing the lowest rates of unemployment, followed by Hispanics and the Blacks have had the highest rates of unemployment.

Also, when analyzed in terms of gender, inflation rates tend to be higher for women than for men. Also in terms of age, the younger suffer more unemployment rates with the middle-aged having lower unemployment rates.

There are other ways in which unemployment can be analyzed. They include the reasons for unemployment, and length of time.

Various types of unemployment exist. They include the following:

Cyclic unemployment

This is unemployment variations which are caused by the economy going from expansion to recession or recession to expansion. This is caused by the business cycle.

Long run or Natural rate of Unemployment

This is the unemployment rate which will result from the combination of economic, social and political factors at a time assuming that the economy was neither in recession or boom

Frictional Unemployment

This is a rate of unemployment caused by people moving from one job to another. The number of job seekers might be equal to the number of vacancies in an economy but it takes some time to find a new job and also, time is required for interviews. This is the reason for frictional unemployment.

Structural Unemployment

This is unemployment resulting from the people who are considered to lack skills applicable in the labor market either because of demand shifts away from their skills or because they have never learnt any skills.

Inflation Rate

This is the general and continuous rise of the level of prices in the economy in general. Inflation means that there is pressure for all prices to increase in most markets in the economy. Inflation rates in most countries around the world have had similar patterns of inflation although the rates have been varied for these countries. For instance, the patterns of inflation for the United States, Japan, Germany and the United Kingdom have been similar. Inflation rates vary greatly in different countries. Countries with controlled economies show lower levels of inflation even in recession. This is because the law does not allow increase in prices.

In the United States, the rate of inflation has been fluctuating so much. In 2004, the rate was 3.3 percent. In 2005 it went to 3.4 percent while in 2006, it dropped to 2.5 percent. It shot to 4.1 in 2007 but dropped to 0.1 percent in 2008. In the year 2009, the rate moved up to 2.7 percent. The rate went down in 2010 to 1.5 but it doubled in 2011 to 3 percent. In recent years, that is, from 2012 up to December 2014, the rate has been going down. In 2012, the rate was 1.7 percent. It went down in 2013 to 1.5 percent and eventually in 2014, it was 0.8 percent. The chart below shows the rates of inflation since 2004 up to 2014. In history, countries such as Brazil and Russia have been hit hard by inflation. For example, in 1999, the inflation rate of Brazil went past 80 percent. Slow inflation has been having benefits to the economy but hyperinflation has had adverse effects on the economies. Low inflation has been having better results in the economy than deflation which has always caused very severe recessions.

CPI, PPI and GDP Deflator

CPI

CPI is the acronym of Consumer Price Index. It is a measure for the examination of the average of prices of a basket of consumer goods and services such as transport, food and medical care. Calculation of the Consumer Price Index is done through taking the price changes for each predetermined basket of goods and averaging them. Two types of consumer price index statistics are measured by the Bureau of Labor Statistics. These are: CPI for urban wage earners and cleric workers (CPI-W), and the chained CPI for all urban consumers. (C-CPI-U). C-CPI-U better represents the general public. This is because it accounts for more than 80 percent of the whole population. It is a useful tool in the identification of periods of inflation and deflation. If CPI increases rapidly, this shows there is inflation. If a large drop in CPI is recorded within a short time, then this shows that there is deflation (Bureau of Labor Statistics, 2013).

PPI

This is an acronym for Producer Price Index. These are indexes that measure the changes of selling prices which are received by domestic producers of goods and services over time. This is a measure of price changes in the producers’ perspective (Bureau of Labor Statistics, 2013). The Producer Price Index looks at three areas of production. They include: Industry-based, commodity-based and stage-of-processing-based companies.

GDP Deflator

The Gross Domestic Product deflator is an index which is measured by Bureau of Economic Analysis (Feenstra, Mandel, Reinsdorf & Slaughter, 2013). This is a price index which includes all the components of GDP; that is consumption plus government expenditure plus investment plus exports minus imports. This index is not fixed like the Consumer Price Index. It can be re-calculated using the base-year’s prices.

References

Bureau of Labor Statistics (2013). Overview of BLS statistics on inflation and prices. Retrieved from: http://www.bls.gov/ on: 14th February, 2015.

Feenstra, R. C., Mandel, B. R., Reinsdorf, M. B., & Slaughter, M. J. (2013). Effects of terms of trade gains and tariff changes on the measurement of US productivity growth. American Economic Journal: Economic Policy, 5(1), 59-93.

Lazear, E. P., & Spletzer, J. R. (2012). The United States labor market: Status quo or a new normal? (No. w18386). National Bureau of Economic Research.