Production Income And Employment


Production and Gross Domestic Product

GDP: A Definition

The Expenditure Approach to GDP Other Approaches to GDP Measuring GDP: A Summary Real Versus Nominal GDP How GDP Is Used Problems with GDP

Employment and Unemployment

Types of Unemployment The Costs of Unemployment How Unemployment Is Measured Problems in Measuring Unemployment

Using the Theory: Society's Choice of GDP

On the first Friday of every month, at 8:00 A.M., dozens of journalists mill about in a room in the Department of Labor. They are waiting for the arrival of the press officer from the government's Bureau of Labor Statistics. When she enters the room, carrying a stack of papers, the buzz of conversation stops. The papers—which she passes out to the waiting journalists—contain the monthly report on the experience of the American workforce. They summarize everything the government knows about hiring and firing at businesses across the country; about the number of people working, the hours they worked, and the incomes they earned; and about the number of people not working and what they did instead. All of this information is broken down by industry, state, city, race, sex, and age. But one number looms large in the journalists' minds as they scan the report and compose their stories: the percentage of the labor force that could not find jobs, or the nation's unemployment rate.

Once every three months, a similar scene takes place at the Department of Commerce, as reporters wait for the release of the quarterly report on the nation's output of goods and services and the incomes we have earned from producing it. Once again, the report includes tremendous detail. Output is broken down by industry and by the sector that purchased it (ordinary households, businesses, government agencies, and foreigners), and income is broken down into the different types of earners—wage earners, property owners, and owners of small businesses. And once again, the reporters' eyes will focus on a single number, a number that will dominate their stories and create headlines in newspapers across the country: the nation's gross domestic product.

The government knows that its reports on employment and production will have a major impact on the American political scene, and on financial markets in the United States and around the world. So it takes great pains to ensure fair and equal access to the information. For example, the Bureau of Labor Statistics allows journalists to look at the employment report at 8:00 A.M. on the day of the release (the first Friday of every month). But all who see the report must stay inside a room—appropriately called the lockup room—and cannot contact the outside world until the official release time of 8:30 a.m. At precisely 8:29 a.m., the reporters are permitted to hook up their laptop modems, and then a countdown begins, ending at precisely 8:30 a.m. At that moment—and not a second before—the reporters are permitted to transmit their stories. At the same instant, the Bureau posts its report on an Internet Web site. (The URL is

The reactions to the government's reports come almost immediately. Within seconds, wire-service headlines appear on computer screens across the country—"Unemployment Rate Up Two-Tenths of a Percent" or "Nation's Production Steady." Within minutes, financial traders, regarding these news flashes as clues about the economy's future, make snap decisions to buy or sell, and prices move in the stock and bond markets. This creates further headlines—"Stock Market Plunges on Unemployment Data" or "Bonds Rally on Output Report." Within the hour, politicians and pundits will respond with sound bites, attacking or defending the administration's economic policies.

Why is so much attention given to the government's reports on production and employment, and—in particular—to those two numbers: gross domestic product and the unemployment rate? Because they describe aspects of the economy that dramatically affect each of us individually and our society as a whole. In this chapter, we will take our first look at production and employment in the economy. The purpose here is not to explain what causes these variables to rise or fall—that will come a few chapters later, when we begin to study macroeconomic models. Here, we will focus on the reality behind the numbers: what the statistics tell us about the economy, how the government obtains them, and how they are sometimes misused.

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