unemploymentcopy aug2011
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Transcript of unemploymentcopy aug2011
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Primer onEmployment/Unemployment
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The Labor Force
The labor force includes all persons overage fifteen who are either working for payor actively seeking paid employment.
People who are not employed or are notactively seeking work are not consideredpart of the labor force.
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The Labor Force
The labor-force participation
rate is the percentage of thepopulation working or seekingemployment.
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Production Possibilities
A growing labor force creates long-runeconomic growth.
Economic growth is an increase inoutput (real GDP); an expansion of
production possibilities.
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Labor Force Growth
C
H
GF
D
Labor-force growthincreasesproductionpossibilities
Consumption Goods (units per year)B
A
Investm
entGoods(un
itsperyear)
O
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Definitions
Unemployment rate:
the percentage of the labor forcewithout a job but registered as being
willing and available for work
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Discouraged Workers
A discouraged workeris an individual who isnot actively seeking employment but would look
for or accept a job if one were available.
Discourage workers are not counted as part ofthe unemployment problem after they give up
looking for a job.
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Okuns Law
Okuns Lawasserts that 1% more
unemployment is estimated to equal 2percent less output.
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Q: Will we ever have 0% unemployment?A:No. There are several reasons why the
unemployment rate will never reach 0%, andthey are detailed in the next slides.
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Classification of Unemployment
Cyclical -workers are laid-off becausebusiness environment is notconducive
Structural -Brought about by the mismatch inskills possessed by workers tothat of the industry requirement.
Frictional - Caused by the decision to look forjob that offers financial andmoral satisfaction
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The labour market
Number of workers
Realwage
LD
LD: labor demand
LF
LF: size of labor force
AJ
AJ: the number of workersprepared to accept jobs
AJ is to the left of LFbecause some membersof the labor force arebetween jobs, others are
waiting for better offers.
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The labour market
Number of workers
R
ealwage
LD
LD: labor demand
LFLF: size of labor forceAJAJ: the number of workersprepared to accept jobs
N1
w*
N*
Equilibrium is at w*, N*.
Natural Rateof
Unemployment.
EF
The distance EF is the:
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Is the Natural Rate of Unemployment:-
1. The number of people registered asunemployed?2. The number of people who cant find
suitable jobs?
3. The number of people who refuse toaccept a job at the going wage rate?
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Explaining the Natural rate
Number of workers
Realwage
LD1
LFAJ
w1
N1
Labour demand (LD1) isat the full-output level
Natural rate of unemployment
This may be explainedby cultural andtechnological factors
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Number of workers
Realwage
LD1
LFAJ
w1
N1
Labour demand (LD2) is
below the full-outputlevel
LD2
w2
N2
Natural rate ofunemployment?
Explaining the Natural rate
This would mean that mostworkers are involuntarilyunemployed in a recession
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Is involuntary unemploymentpossible?
Number of workers
Real
wage
Case 1LF
AJ
w*
N*
LD
AB isinvoluntaryunemployment
- this isCLASSICALunemployment
Trade Unions
maintain wageshigher thanequilibrium rate.
w1A B
N1
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Is involuntary unemploymentpossible?
Number of workers
Real
wag
e
Case 2LF
AJ
w*
N*
LD
Demand forLabor (LD1)is below
full-outputlevel(recession)
LD1
w1
C D
N1
CD isinvoluntaryunemployment- this isKeynesian or
demand-deficientunemployment
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Different views ofunemployment
Number of workers
Realwage
LD1
LFAJ
w1
N1
LD2
w2
N2
Keynesian Monetarist
Concern is
with theeconomyoperatingbelow thefull-output
level
Concern iswithincreasingthe full-output level
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Different solutions tounemployment
Keynesian Monetarist
Number of workers
Realwage
LD1
LFAJ
w1
N1
LD2
w2
N2
Use Supply-Side policiesto close gapbetween AJand LF
Demandmanagementpolicies toreduce
involuntaryunemployment
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Supply Side Policies
Number of workers
Real
wage
LD1
LF
AJ
w1
N1
Reduce
FrictionalUnemployment.
StructuralUnemployment.
Classical
Unemployment.
Shiftthe AJcurve totheright
Decreasewagerigidity
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Supply Side Policies
Reduce
FrictionalUnemployment.
Provide job informationPart of the reason why people remain unemployed may
be that they are unaware of the availability of jobs -providing more extensive and accurate information,for example in Job Centres should reduce thisproblem.
Reduce timebetween jobs
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Supply Side Policies
Reduce
StructuralUnemployment.
Improve training/educationthis helps to ensure a better match between jobs on
offer and jobs seekers - a example might be theprovision of training to redundant mine workers sothey would be capable of taking jobs in the computerindustry.
Reduce mismatchof skills
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Supply Side Policies
Reduce
ClassicalUnemployment.
Improve wage flexibilityIn practice this means convincing people that theyshould accept LOWER wage rates. Therefore anything that allows workers to remain
unemployed (high unemployment benefits or job
seekers allowance) should be reduced. Restriction on free market wage flexibility such
as Minimum Wage laws, should be removed. Institutional restrictions, such as Trade unions
power in wage determination, should be reduced.
Reduce wagerigidity