Macroeconomics (1)

In the same way, a given unemployment rate may reflect two very different realities.
It may reflect an active labor market, with many separations and many hires,
and so with many workers entering and exiting unemployment; or it may reflect a
sclerotic labor market, with few separations, few hires, and a stagnant unemployment
pool.
Finding out which reality hides behind the aggregate unemployment rate requires
data on the movements of workers. The data are available in the United States from
a monthly survey called the Current Population Survey (CPS). Average monthly
flows, computed from the CPS for the United States from 1994 to 2011, are reported in
Figure 6-2. (For more on the ins and outs of the CPS, see the Focus box “The Current
Population Survey.”)
Figure 6-2 has three striking features:
■
■
The flows of workers in and out of employment are very large.
On average, there are 8.5 million separations each month in the United States
(out of an employment pool of 132.4 million), 3.1 million change jobs (shown by
the circular arrow at the top), 3.6 million move from employment to out of the labor
force (shown by the arrow from employment to out of the labor force), and 1.8 million
move from employment to unemployment (shown by the arrow from employment
to unemployment).
Why are there so many separations each month? About three-fourths of
all separations are usually quits—workers leaving their jobs for what they perceive
as a better alternative. The remaining one-fourth are layoffs. Layoffs come
mostly from changes in employment levels across firms: The slowly changing
aggregate employment numbers hide a reality of continual job destruction and
job creation across firms. At any given time, some firms are suffering decreases
in demand and decreasing their employment; other firms are enjoying increases
in demand and increasing employment.
The flows in and out of unemployment are large relative to the number of unemployed:
The average monthly flow out of unemployment each month is 4.0 million:
2.1 million people get a job, and 1.9 million stop searching for a job and drop
out of the labor force. Put another way, the proportion of unemployed leaving
unemployment equals 4.0/8.4 or about 47% each month. Put yet another way, the
Sclerosis, a medical term,
means hardening of the arteries.
By analogy, it is used in
economics to describe markets
that function poorly and
have few transactions.
The numbers for employment,
unemployment, and those out
of the labor force in Figure 6-1
referred to 2010. The numbers
for the same variables in Figure
6-2 refer to averages from
1994 to 2011. This is why they
are different.
Put another, and perhaps
more dramatic way: On average,
every day in the United
States, about 60,000 workers
become unemployed.
1.8
3.1
Unemployment
8.4 million
Employment
132.4 million
2.1
1.8
1.9
3.6
3.3
Out of the
labor force
73.3 million
Figure 6-2
Average Monthly Flows between
Employment, Unemployment,
and Nonparticipation in the
United States, 1994 to 2011
(millions)
(1) The flows of workers in and out
of employment are large; (2) The
flows in and out of unemployment
are large relative to the number
of unemployed; (3) There are also
large flows in and out of the labor
force, much of it directly to and
from employment.
Source: Calculated from the series constructed
by Fleischman and Fallick, http://
www.federalreserve.gov/econresdata/
researchdata.htm
Chapter 6 The Labor Market 113