Fluctuations in real GDP influence the demand for labor and unemployment
As we learned in Chapter 7, gross domestic product indicates whether an economy is healthy or not. “Fluctuations in real GDP influence the demand for labor and unemployment” (Gwartney et al, 2018). The number of people who participate or do not participate in the workforce, affects the unemployment rate. This number only includes those who are employed and unemployed, including part time employees. This does not include those who are disabled, retired, students or those who cannot work due to illnesses. “The rate of unemployment is the number of people unemployed expressed as a percentage of the labor force” (Gwartney et al, 2018). This rate is calculated by taking the number of people who are unemployed and dividing that number by those who are employed. Then that number is multiplied by 100 to get a percentage.
The pandemic had a serious effect on the unemployment rate. Though this is not surprising, it is still sad actually seeing the numbers and knowing the struggles many of these people had to face during that challenging time. According to the US Unemployment Rate (2021), pre-pandemic (March 2020), the unemployment rate was 3.8%, by June 2020 the percentage was 13%, September 2020 it decreased to 8.8%, then it decreased again in December 2020 to 6.7%, and finally as of March 31, 2021, the rate is 6.2%.“The unemployment rate is a lagging indicator. This means it measures the effect of economic events, such as a recession. The unemployment rate doesn’t rise until after a recession has already started” (Amadeo, 2020). This is important for businesses to understand. It helps them figure out if the economy is healthy enough to expand and hire more people or if they have to create a layoff plan. These hiring decisions fall into the business cycle which “can be defined as the downward and upward fluctuations of gross domestic product (GDP) along its natural growth rate over a long period of time” (Amadeo, 2020). There are four phases to the business cycle: expansion, peak, contraction, and trough. When the economy is healthy and the unemployment rate is low, this is where the expansion phase occurs. However, when the economy is in recession and unemployment rates are high, this is where the recession happens, and mass layoffs occur. This happens in the contraction and trough phases.Similar to GDP, the accuracy of unemployment rates can be questioned. There are so many moving parts and components to be measured that it is hard to have a 100% accurate unemployment rate. For example, there are millions of undocumented immigrants living in the United States. Their presence can be counted towards the unemployment rate. Furthermore, the definition of who qualifies for and against being employed can be skewed.
Resources
Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com (Links to an external site.)
US Unemployment Rate. (2021). https://ycharts.com/indicators/us_unemployment_rate_quarterly#:~:text=Basic%20Info,long%20term%20average%20of%206.36%25 (Links to an external site.).
Amadeo, K. (2020, November 21). Why Every Jobless Person Is Not Counted as Unemployed. The Balance. https://www.thebalance.com/unemployment-rate-3305744.
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