Macro Lecture ch10 unemployment

8/9/2019 Macro Lecture ch10 unemployment

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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

Macro Lecture ch10 unemployment

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