copyright © 2009 pearson education, inc. 14- 1 topic 5-3. (ch. 14) unemployment

Copyright © 2009 Pearson Education, Inc. 14- 1

Topic 5-3. (Ch. 14)

Unemployment


Table 14.1: Civilian Labor Force Participation, Employment, and Unemployment Rates in the

United States (in percentages)


Figure 14.1: Average Monthly Labor Market Stocks and Flows: 1996-2003


Table 14.2: Source of Unemployment, United States, Various Years


Unemployment rate

Unemployment rate (u)

= f (PEN PNE PUN PNU PEU PUE) + - - + + -

Where PXY is percentage of X from X to Y.

u =

])()([

ENNUEUNUNE

UNNEUENUNE

PPPPPPPPPP1

1


Figure 14.2: A Market with Full Employment Initially


Unemployment

Demand deficit: economic fluctuation (xz of Beveridge curve)

Seasonal: ski instructorsFrictional: result of natural search

processStructural: fundamental mismatch

because of skill and residence ( yz)Beveridge curve: indicate negative

relationship between vacancy rate and unemployment rate


Beveridge curve

Vacancy

Unemployed

X

Z

y


Unemployment flowsL=E+UAt equilibrium

nU = sE n: fraction leaving unemployment (outflow from U) s: fraction become unemployed (inflow to U)

nU = s(L-U) nU =sL-sU (s+n)U=sL U=L[s/(s+n)] U/L = s/(s+n)

(unemployment rate)


Unemployment flows (cont’)

If n then U/L , If s then U/L Improvements in the employment

service that help match unemployment workers to vacant jobs more effectively (n). B curve move inward

High unemployment insurance (n ) B curve move outward

Greater industrial diversity (s, n) B curve move inward


Unemployment InsuranceCriteria: different across states 1) Reasons for unemployment :

involuntary laid off. 2) Labor market experience: weeks-worked tests or minimum earnings tests. New entrants or reentrants are not eligible.There is maximum duration (eg. 26 week)He/she should make continual effort. Evidence: high unemployment insurance longer

duration


Figure 14.4: Weekly Unemployment Insurance Benefits as a Function of

Previous Earnings


Duration vs. Incidence

Incidence rate: % of workers experiencing any unemployment

Spell: how many times unemployedu = spells per unemployed worker (S)* average duration per spell (D)* incidence rate (I) /unit of duration in 1 yearex1) everybody experienced unemployment once

and duration is 3.2 weeksu = 1 * 3.2/52 * 100% = 6.1%ex2) about 6.1% of people experienced

unemployment entire year (52 weeks)


Completed vs. Incomplete spell

Incomplete spell makes it hard to find the average duration per spell.

Duration of spells in progress is different from duration of all spell.

ex) 1 person: 52 weeks & still unemployed in the first week of the year.

52 person: all spells lasted only one week. Average duration of spells of unemployment in

progress = (1*52+1*1)/2 = 26.5 weekAverage duration of completed unemployment = (1*52+52*1)/53 = 2 weeks


US vs. Europe

Unemployment rate is just a little bit higher in Europe.

But duration is much longer in Europe (on average more than 1 year) and number of spells and incidence rates are higher in US

US responds to business cycles (demand deficient, Europe’s is more structural)


Figure 14.6: The Wage Curve


Heterogeneity vs. State-dependence

Hazard rate (H): the probability of leaving unemployment. H drops as duration of unemployment increases. That is, as duration increases, the fraction of workers with high probabilities of finding a job remaining in the sample decreases. Two factors. 1) Heterogeneity: H is different across individual characteristics.

2) State dependence: the longer duration of unemployment is stigma since employers use the duration as screening device.


Table 14.3: Unemployment Rates in 2005 by Demographic Group


Structure of unemployment

Women: Now, not much different from men’s. Increased labor force attachment. Affirmative action.

Youth: Very high “job shopping model”Unemployment does not create a permanent “scarring” (scarring vs. stigma)

Black youth’s unemployment more than doubled.Duration: old>young, men>women, married men

>single, black>whiteIncidence: old<young, men<women,

black>white


What is work-sharing?

Surplus loss:A. one worker with 40 hours = A+B+C B. two workers with 20 hours = 2C Wage C B A

Working Hours

copyright © 2009 pearson education, inc. 14- 1 topic 5-3. (ch. 14) unemployment

Documents