macro lecture ch10 unemployment
TRANSCRIPT
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Unemployment
(ch 10)
Dr. Katherine Sauer
Principles of Macroeconomics
ECO 2010
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Overview:
I. Measuring Unemployment
II. Types of Unemployment
III. Job Search
IV. Other Causes of Unemployment
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I. Measuring Unemployment
The Bureau ofLaborStatistics computes unemploymentstatistics.
- monthly
The information comes from the Current PopulationSurvey (CPS) - monthly survey of households
- a sample of 60,000 households
- personal and telephone interviews
- data on:
labor force employment
unemployment persons not in the labor force
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The basic concepts involved are simple:
- People with jobs are employed.
- People who are jobless, looking for jobs, and
available for work are unemployed.
- People who are neither employed norunemployed are not in the labor force.
Excluded from these categories are persons- under 16 years of age
- confined to institutions (ex: nursing homes, prisons)
- on active duty in the military
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Why not count the military?
- Historically, it was not counted because service wasnt
necessarily voluntary.
- In 1983, the 10th anniversary of all-volunteer armed
forces, the BLS started to count military personnel.
- In 1994 the BLS stopped counting them.
- not accurate reporting from military (ex: fast
deployments)
- not same data categories as BLS used
- didnt seem to matter
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1. employed
- did any work for pay or profit during the survey week
- at least 15 hours ofunpaid workin a family-owned
enterprise operated by someone in their household
- temporarily absent from their regular jobs, whether theywere paid or not
Not all of the job situations in the American economy fitneatly into a given category.
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Persons also are counted as employed if they have a job at
which they did not workduring the survey week becausethey were:
On vacation
Ill
Experiencing child-care problemsTaking care of some family or personal obligation
On maternity or paternity leave
Involved in an industrial dispute
Prevented from working by bad weather
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2. unemployed
Persons are classified as unemployed if they- do not have a job
- have actively looked for work in the prior 4 weeks
- are currently available for work
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Workers expecting to be recalled from layoff are
counted as unemployed, whether or not they have
engaged in a specific job-seeking activity.
In all other cases, the individual must have been
engaged in at least one active job search activity in
the 4 weeks preceding the interview and be
available for work (except for temporary illness).
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3. not in the labor force
Persons not in the labor force are those who are not
classified as employed or unemployed during the survey
week.
Many who are not in the labor force are going to school
or are retired.
Family responsibilities keep others out of the labor force.
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TheLabor Force is the total number of workers in the
economy, whether they are employed or unemployed.
Labor Force = number employed + number unemployed
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The labor force is not a fixed number of people.
- It increases with the long-term growth of the
population.
- It responds to economic forces and social trends
- Its size changes with the seasons.
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The seasonal fluctuations in the number of employed
and unemployed people reflect- normal seasonal weather patterns
- the hiring (and layoff) patterns that accompany
regular events such as the winter holiday season
and the summer vacation season
To deal with such problems, a statistical technique
called seasonal adjustment is used.
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The Labor Force Participation Rate is the percent of thetotal eligible population that is in the Labor Force:
LPF = # in the Labor Force x 100
adult population
age 16 or more
non-institutionalized
civilian
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The Unemployment Rate is the percent of the Labor
Force that is unemployed:
U = # unemployed x 100
# in Labor Force
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www.BLS.gov
The entire US population is about 310 million.
Subtracting people under 16, the military and peoplein institutions, the number of potential workers is:
Of this number, how many are actually in the labor force?
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The table says the labor force participation rate is 64.2%. Verify this
number using the formula for the labor force participation rate.
LFP = Labor Force x 100 =
eligible pop
Of all the potential workers, this is the portion who are working or
wish to work.
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Verify that the labor force is the sum of employed people and
unemployed people:
Verify that the number of people not in the labor force is the eligible
population minus the labor force:
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Notice that there are people who arent in the labor force, but who
want a job.- discouraged workers who have stopped looking for a job
but would take one if it were available
- some areas have no jobs (dying factory towns,
economically depressed areas) so why bother looking?
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The table says the unemployment rate is 9%. Verify this number
using the formula for the unemployment rate.
LFP = # unemployed x 100 =
# labor force
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www.BLS.gov
Which states have the highest
unemployment?
Which states have the lowest
unemployment?
What do we know about
unemployment in states that
are not on this list?
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Someproblems with the Unemployment rate measure:
- people enter/exit the labor force at will
- how to know if people are actively looking for work?
- discouraged workers dont count
- underemployment isnt measured
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On a half sheet of paper,
1. explain one concept you learned today
2. note the concept that you find the most fuzzy
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II . Types of Unemployment
1. Natural Rate of Unemployment= the normal rate of
unemployment in a country
2. Cyclical Unemployment= the deviation of the
unemployment rate from its natural rate
- varies with the business cycle
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3. Frictional Unemployment= even in good economic
times, it takes time to look for a job, apply, getinterviewed, and get hired
ex: you graduate and start looking for a job
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4. Structural Unemployment= caused by a
mismatchbetween jobs offered by employees and
potential workers in some labor markets
ex: number of vacancies may be equal to the
number of the unemployed but
- lack the skills needed for the jobs available
- jobs are in a different part of the country
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5. Seasonal Unemployment= the unemployment
that accompanies regular seasonal events
ex: ski season, harvest time
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Because of structural and frictional unemployment,the unemployment rate is neverzero.
Even when the economy is doing very well, there will
be some unemployment.- the natural rate of unemployment
- the full-employment rate of unemployment
The natural rate of unemployment is roughly equal tothe sum of Frictional and Structural unemployment.
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III. Job Search
Because workers differfrom one another in terms of their
skills and tastes and jobs differ in their attributes, it is
often difficult for workers to match with the appropriatejob.
The faster information spreads about job openings and
worker availability, the more rapidly the economy canmatch workers and firms.
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Government programs can help to reduce the amount of
frictional unemployment.
Government-run employment agencies give out
information on job vacancies.
Public training programs can ease the transition of
workers from declining to growing industries and
help disadvantaged groups escape poverty.
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Unemployment insurance is one way that government
intervenes in the labor market.
Because unemployment insurance reduces the hardship
of unemployment, it also increases the amount of
unemployment that exists.
Many studies have shown that more generous
unemployment insurance benefits lead to reduced
job search effort and, as a result, moreunemployment.
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IV. Other Causes of Unemployment
1. Minimum wage laws
wage
Quantity of Labor
SLabor
DLabor
Q*
w*
wm
Qd Qs
Surplus
of people
wanting
to work
Minimum
wage
In the labor market, the
supply curve is the
workers wanting to
work.
The demand curve is
firms hiring.
The market clearing
wage is deemed to be
too low so a minimumwage is implemented.
What is the result?
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Who earns the minimum wage?
In 2006, the Department of Labor released a study
concerning workers who reported earnings at or belowthe minimum wage.
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- Of all workers paid an hourly rate in the United
States, about 2% of men and 3% of women reportedwages at or below the minimum wage.
- Minimum-wage workers tend to be young, with
about half under the age of 25.
- Minimum-wage workers tend to be less educated.
Of those workers ages 16 and over with a high
school education, only 2% earned the minimumwage.
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- The industry with the highest proportion of workers
with reported wages at or below the minimum wagewas leisure and hospitality.
- The proportion of workers earning the prevailing
minimum wage has trended downward since 1979.
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Minimum wage laws help the young, least educated
and those in the leisure/hospitality industry.
Minimum wage laws also contribute to
unemployment among the young, least educated and
those in the leisure/hospitality industry.
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2. Efficiency wages are above equilibrium wages paid in
an attempt to increase productivity.
reasons:
- decrease worker turnover
- increase worker effort
- attract better workers- improve worker health (developing nations)
Anytime the wage is above equilibrium, unemployment
will be a result.- more people willing to work at that wage than
there are jobs available
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3. Unions
A Union is a group that tries to negotiate higher wages,
better benefits, and better working conditions for
members.
- collective bargaining
- strike
They play a smaller role in the US economy now than
they once did.
- still prevalent in many European nations
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Union workers can earn from 10% to 20% morethan non-union workers.
Because the wage is pushed up past equilibrium,
there will be some unemployment.- union members vs non-union members
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Are Unions Good or Bad for the Economy?
Critics of unions argue that unions are a cartel, which
causes inefficiency because fewer workers end up being
hired at the higher union wage.
Advocates of unions argue that unions are an answer to
the problems that occur when a firm has too much power
in the labor market.
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Summary:
The unemployment rate is the percentage of those who
would like to work but do not have jobs.
The unemployment rate is an imperfect measure of
joblessness.
Just because someone doesnt have a job, it doesntmean they are unemployed.
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In the U.S. economy, most people who become
unemployed find work within a short period of time.
There are several reasons for unemployment even in good
economic times:
- takes time to find a job matching your preferences
and skills
- dynamic, changing economy will always have
some sectors that become obsolete
- wages paid above equilibrium
- minimum wage laws
- unions
- efficiency wages
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On a half sheet of paper,
1. explain one concept you learned today
2. note the concept that you find the most fuzzy