The employment–population ratio, from the Current Population Survey, is a measure that might correspond to the concept of employment, N, in our model.

(a) Plot the employment–population ratio for the years 1980–2016.

(b) Given that the real wage in the United States increased from 1980 to 2016, comment on what you observe in your plot.

(c) How would you tell a story about the income and substitution effects in labor supply decisions that would be consistent with this data? What is our model of consumer behavior in this chapter missing that might explain what is going on in your chart?

(d) Do you think that the ratio of employment to the total population is a good measure of average hours worked per person in the economy? Explain why or why not.

Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at http://research.stlouisfed.org/fred2/