Perhaps the most important lesson of this chapter is that even in the best of times, unemployment will exist and fluctuate. The economy is always changing and only through change is there growth. It is important to help workers who are buffeted by change, but there is a difference between helping workers to adjust and trying to prevent adjustment—ultimately, we can do the former but not the latter. As we discussed in this chapter, some labor market policies intended to protect workers have increased structural unemployment in Western Europe compared with the United States. Labor market policies that make it easier for workers to retrain and move to employment have had greater success in keeping long-term unemployment low.

After reading this chapter, you should know how unemployment, the unemployment rate, and the labor force participation rate are defined. You should also be able to apply these definitions to data. For example, there are 10 people; 6 have jobs, 1 is looking for work, 1 is a child, 1 is in prison, and the last is retired. What is the labor force? What is the unemployment rate? What is the labor force participation rate?13 You should also know something about frictional, structural, and cyclical unemployment, which includes defining each and giving examples of their causes.

Finally, it’s important to know something about the factors that increase or decrease the labor force participation rate. Changing demographics such as aging baby boomers, technology like the pill, cultural attitudes toward women and work, and government policy such as taxes and pension benefits can all change the labor force participation rate. At the most basic and important level, the labor force participation rate responds to the incentive to work.

Changes in the labor force participation rate can have a large impact on an economy. In much of the world today, women have fewer opportunities to be educated and to fully participate in the paid workforce than men—this failure to fully utilize the talents of women is an enormous loss to these women and to the economy. The labor force participation rates of older workers will become a subject of increasing concern as more workers retire and place increasing demands on pension and health systems not just in the United States but around the developed world.

245