employment and unemployment · 10.09.2017 · employment and unemployment, pattern •any pattern?...

Spring, 2017

Employment And UnemploymentInstructor: Xi Wang

RoadMap

• Introduction

• Concepts and Definition

• Pattern

• Explain

Does Employment Status Matter?

• Yes! Recall that Production=Expenditure=Income?

• For the income, 2/3 of it is labor income


• Yes! Recall that Production=Expenditure=Income?

• For the income, 2/3 of it is labor income

• It means that most of our income comes from our job!!!

• Employment Matters?

Does Employment Status Matter? Example

• What happens in The Great Depression

• Unemployed

Does Employment Status Matter? Example

• What happens in The Great Depression?

Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, age 32, a mother of seven children, in Nipomo, California, March 1936

RoadMap

• Introduction


• Pattern

• Explain


• Employment Matters.

• How shall we measure unemployment or employment status of our economy?

• Typically, we use Unemployment rate-- You may wonder why no level of unemployment?(Give me two slides)

• Unemployment rate: denominator is unemployment level, numerator is level of labor force.

Employment and Unemployment, Measurement

• Labor force: Only those people who wants and is eligible to work, even though he may not have a job yet.

• Number of Unemployed +Number of Employed = Labor force

• Labor force+ not want to work(Not in labor force)= Potential workers

• Potential workers: civilian non-institutional population ages 16 and over; Hence children under 16 years of age, people on active duty in the military, and institutionalized people(in Jail or nursing house) are no Potential Workers.


• Why don't we just use quantity of

employed?

• Not comparable cross countries and

time

• Unemployment rate

EmployedUnemployedUnemployedForceLabor

Unemployed

ratent Unemployme

ratent Unemployme


• How does unemployment rate move cross time?

WorkersPotentialForceLabor rateion participat forceLabor

RoadMap

• Introduction


• Pattern

• Explain

Employment and Unemployment, Pattern

• Any Pattern?

• (1)When the overall economy suffers a recession—a period in which growth of GDP fal ls—the unemployment rate tends to r ise. So unemployment rate negatively correlated with GDP growth

• The Great Depression of the 1930s, for example. Recent crisis.

• (2) Unemployment rate is never close to zero, lower bound 2 percent.

Negatively correlated: I

Negatively correlated: II

Employment and Unemployment, Pattern

• (3)Who gets Unemployed?

• High educated and middle aged tend to have lower unemployed rate

RoadMap

• Introduction


• Pattern

• Explain: why do we have unemployment?

Labor Market, Demand

• Let's take labor as a kind of goods, let's see what happens in labor market.

• Review:• What is the fundermental Property of Demand Curve?

• Downward sloping!

• Why? Optimization process of consumers!

• Who is going to consume labor? Firm!

Labor Market, DemandNumber of

workers hired to operate drilling

point

Total Cost ($) Total Benefit ($) Net Benefit ($) Marginal Benefit ($/gallon)

0 0 0 0

1 4 8 4

2 8 15 7

3 12 21 9

4 16 26 10

5 20 30 10

6 24 33 9

7 28 35 7

8 32 36 4

• What is the fundermental Property of Demand Curve?

• Why do we have downward sloping demand curve for labor?

• Diminishing marginal product of labor : each additional worker creates less marginal output than the workers who were hired before

• Why? Since you will always hire along your ranking list!

Labor Market, Demand Shift

• Changing output prices

• Changing demand for the output good or service

• Changing technology

• Changing other input prices

Labor Market, Demand

• What is the general property of supply curve?

• Why?

• Optimization of Supplyer!

• Who is providing labor to our market? What is their Optimization process?

Labor Market, Supply, Two dimension: How Many?

• How many hours you would like to work given the wage?

• Is there any concern when you decide how many hours to work?

• Yes! More working time means less family time, less Trips, less parties

• So you need to balance the time of work

and Leisure. Since We are Lazy!!!

Labor Market, Supply, Two dimension : How Many?

• Let's use an illustrating way to look at labor supply:

• What is the normal demand curve looks like? Downward sloping! Since?

• Diminishing marginal Benefit

• Now, for example. You have 24 hours per day, you need 8 hours sleep, 1 hour for meals.

Labor Market, Supply, Two dimension : How Many?

• Now, for example. You have 24 hours per day, you need 8 hours sleep, 1 hour for meals

• Hence you have 15 hours to work at most!

• What if you decide to work 7 hours? What if you decide to consume 8 hours leisure?

• What is the price of leisure?

Labor Market, Supply, Two dimension : Yes or No?

• If the working hour is not negotiable! 8 hours, take it or leave it

• Reservation Wage;

• It is almost impossible to adjust Working hours!

Labor Market, Supply Shift

• Changing tastes

• Changing opportunity cost of time

• Changes in population

Equilibrium，Do We have unemployment?

Labor Market, Equilibrium

• There will be no unemployment in Equilibrium, If we only use simple Demand and supply analysis.

• As we emphasized serveral times, Model is only a simplification

• If we cannot explain unemployment, we must have oversimplified something

Labor Market, Why there is unemployment, Friction Part

• (1) Some workers who are only willing to work for a wage above the market-clearing wage, Think about our reservation case.

• (2) Or Worker need to find where the jobs locate, we need to do job-hunting. ----Information friction

• (3) Firms need different labor.---Matching friction

• Frictional unemployment is the unemployment resulting from imperfect information about available jobs and from the time-consuming process of job search.

Labor Market, Why there is unemployment, Market Part

• Wage rigidity, downward wage rigidity

• Since Labor Contract,

Minimum Wage law

Union(the threat of going on strike)

Labor Market, Why there is unemployment, Market Part

• Price will lie above equilibrium Price

• Quantity of labor supplied persistently exceeds the quantity of labor demanded----Structural unemployment(SU)

• Mismatching friction also results in SU.

• This part is not from information friction.

Natural unemployment rate

• The natural rate of unemployment is the rate around which the actual rate of unemployment fluctuates

• Mean

• Cyclical unemployment is defined as the deviation of the unemployment rate from its natural rate.

• Example: if n.r.u=6%, now our u.r=8% then c/u=8%-6%=2%

Natural unemployment rate, Full employment

• Recall our pattern of unemployment, never hit zero

• In a market-based economy, there will always be some unemployment, it may comes from structual unemployment or frictional unemployment (Recall definition?)--- These unemployment is healthy, so we tend to think that nature unemployment is the best status. --- Full employment means natural unemployment rate is attained.

• Cyclical unemployment? Recall the pattern of unemployment? Negatiely correlated with GDP growth!

• (informational) Frictional Unemployment: short run in nature; consists of those temporarily between jobs. i.e Job searching

• Structural Unemployment: results from deep-rooted conditions & fundamental changes in our economy. i.e job dismatching

• Cyclical Unemployment: this is the type that arises as a result of our economic instability/business cycles. Difference between current unemployment rate and Natrual rate

Kinds of unemployment rate, Summary

Natural unemployment rate


• Mean


Cyclical unemployment rate


• Mean


employment and unemployment · 10.09.2017 · employment and unemployment, pattern •any pattern?...

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