© 2005 Prentice Hall Publishing ECONOMICS: Explore & Apply, Enhanced Edition Ayers/Collinge 1...

1

©2005 Prentice Hall Publishing ECONOMICS: Explore & Apply, Enhanced Edition Ayers/Collinge

CHAPTER 6CHAPTER 6UnemploymentUnemploymentCHAPTER 6CHAPTER 6

UnemploymentUnemployment

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLY

Enhanced EditionEnhanced Edition

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLY

Enhanced EditionEnhanced Edition

2


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

1.1. Identify who is part of the labor force, Identify who is part of the labor force, and who is not.and who is not.

2.2. Explain how the unemployment rate is Explain how the unemployment rate is calculated.calculated.

3.3. Elaborate upon unemployment in other Elaborate upon unemployment in other countries.countries.

4.4. Divide unemployment into different Divide unemployment into different types and explain the implications each.types and explain the implications each.

1.1. Identify who is part of the labor force, Identify who is part of the labor force, and who is not.and who is not.

2.2. Explain how the unemployment rate is Explain how the unemployment rate is calculated.calculated.

3.3. Elaborate upon unemployment in other Elaborate upon unemployment in other countries.countries.

4.4. Divide unemployment into different Divide unemployment into different types and explain the implications each.types and explain the implications each.

3


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

5.5. Describe the natural rate of unemployment Describe the natural rate of unemployment and its converse, full-employment GDP.and its converse, full-employment GDP.

6. 6. (E&A) Discuss how the quality of (E&A) Discuss how the quality of unemployment can deteriorate when unemployment can deteriorate when mandates increase.mandates increase.

5.5. Describe the natural rate of unemployment Describe the natural rate of unemployment and its converse, full-employment GDP.and its converse, full-employment GDP.

6. 6. (E&A) Discuss how the quality of (E&A) Discuss how the quality of unemployment can deteriorate when unemployment can deteriorate when mandates increase.mandates increase.

4


6.16.1MEASURING UNEMPLOYMENTMEASURING UNEMPLOYMENT6.16.1MEASURING UNEMPLOYMENTMEASURING UNEMPLOYMENT

AddAdd employment employment and and unemploymentunemployment to to the list of macroeconomic concerns the list of macroeconomic concerns because…because…Most people’s incomes come from their jobs.Most people’s incomes come from their jobs.

To understand unemployment we must To understand unemployment we must measure it in total, and by types.measure it in total, and by types.

An economy with unemployment is An economy with unemployment is wasting resources.wasting resources.

AddAdd employment employment and and unemploymentunemployment to to the list of macroeconomic concerns the list of macroeconomic concerns because…because…Most people’s incomes come from their jobs.Most people’s incomes come from their jobs.

To understand unemployment we must To understand unemployment we must measure it in total, and by types.measure it in total, and by types.

An economy with unemployment is An economy with unemployment is wasting resources.wasting resources.

5


The Labor Force and The Labor Force and UnemploymentUnemployment


The U.S. The U.S. civilian labor forcecivilian labor force is composed of is composed of individuals age 16 and over, excluding the individuals age 16 and over, excluding the military.military.

The labor force and be divided in two parts The labor force and be divided in two parts consisting of the consisting of the employedemployed, and the , and the unemployedunemployed..

The employed are those who work for pay, and the The employed are those who work for pay, and the unemployed are those who do not work, but are unemployed are those who do not work, but are seeking jobs.seeking jobs.

The unemployment rate is the fraction of the labor The unemployment rate is the fraction of the labor force who are unemployed, expressed in force who are unemployed, expressed in percentage terms.percentage terms.

The U.S. The U.S. civilian labor forcecivilian labor force is composed of is composed of individuals age 16 and over, excluding the individuals age 16 and over, excluding the military.military.

The labor force and be divided in two parts The labor force and be divided in two parts consisting of the consisting of the employedemployed, and the , and the unemployedunemployed..

The employed are those who work for pay, and the The employed are those who work for pay, and the unemployed are those who do not work, but are unemployed are those who do not work, but are seeking jobs.seeking jobs.

The unemployment rate is the fraction of the labor The unemployment rate is the fraction of the labor force who are unemployed, expressed in force who are unemployed, expressed in percentage terms.percentage terms.

6


The Unemployment RateThe Unemployment RateThe Unemployment RateThe Unemployment Rate

Unemployment Rate =Unemployment Rate =Number of Unemployed PersonsNumber of Unemployed Persons

Number of Persons in the Labor ForceNumber of Persons in the Labor Force

7


The labor force participation rateThe labor force participation rate is the is the ratio of the civilian labor force to the ratio of the civilian labor force to the population age 16 and over.population age 16 and over.

Between 1979, and 2003 there has been a Between 1979, and 2003 there has been a consistent increase in the participation consistent increase in the participation rate because of the increase in the rate because of the increase in the number of women in the labor force.number of women in the labor force.

The labor force participation rateThe labor force participation rate is the is the ratio of the civilian labor force to the ratio of the civilian labor force to the population age 16 and over.population age 16 and over.

Between 1979, and 2003 there has been a Between 1979, and 2003 there has been a consistent increase in the participation consistent increase in the participation rate because of the increase in the rate because of the increase in the number of women in the labor force.number of women in the labor force.



8


Increased opportunities for women and Increased opportunities for women and minoritiesminorities

Opportunities for early retirementOpportunities for early retirementBetter healthcare lets us work longerBetter healthcare lets us work longerGovernment Aid Government Aid Individual attitudes towards workIndividual attitudes towards work

Increased opportunities for women and Increased opportunities for women and minoritiesminorities

Opportunities for early retirementOpportunities for early retirementBetter healthcare lets us work longerBetter healthcare lets us work longerGovernment Aid Government Aid Individual attitudes towards workIndividual attitudes towards work

WHAT INFLUENCES THE WHAT INFLUENCES THE LABOR FORCE?LABOR FORCE?

WHAT INFLUENCES THE WHAT INFLUENCES THE LABOR FORCE?LABOR FORCE?

9


Year

PopulationAge 16 and Over(millions)

Labor Force(Millions of Civilians)

Labor Force Participation Rate (In Percent)

Mnumber of unemployed(In Millions)

UnemploymentRate(In Percent)

1979 164.9 105.0 63.7 6.1 5.81980 167.7 106.9 63.8 7.6 6.21981 170.1 108.7 63.9 8.3 7.61982 172.3 110.2 64.0 10.7 9.71983 174.2 111.6 64.0 10.7 9.61984 176.4 113.5 64.4 8.5 7.51985 178.2 115.5 64.8 8.3 7.21986 180.6 117.8 65.3 8.2 7.01987 182.8 119.9 65.6 7.4 6.21988 184.6 121.7 65.9 6.7 5.51989 186.4 123.9 66.5 6.5 5.31990 188.0 124.8 66.4 6.9 5.51991 188.0 125.3 66.0 8.4 6.71992 189.8 127.0 66.3 9.4 7.41993 191.6 128.0 66.2 8.7 6.81994 193.6 131.1 66.6 8.0 6.11995 196.8 132.3 66.6 7.4 5.61996 198.6 133.9 66.8 7.2 5.41997 200.6 136.3 67.1 6.7 4.91998 203.1 137.7 67.1 6.2 4.51999 205.2 139.4 67.1 5.9 4.22000 207.8 140.9 67.2 5.6 4.02001 211.9 141.8 66.9 6.7 4.82002 214.0 142.5 66.6 8.3 5.82003 221.3 146.5 66.2 9.1 6.2

Year

PopulationAge 16 and Over(millions)

Labor Force(Millions of Civilians)

Labor Force Participation Rate (In Percent)

Mnumber of unemployed(In Millions)

UnemploymentRate(In Percent)

1979 164.9 105.0 63.7 6.1 5.81980 167.7 106.9 63.8 7.6 6.21981 170.1 108.7 63.9 8.3 7.61982 172.3 110.2 64.0 10.7 9.71983 174.2 111.6 64.0 10.7 9.61984 176.4 113.5 64.4 8.5 7.51985 178.2 115.5 64.8 8.3 7.21986 180.6 117.8 65.3 8.2 7.01987 182.8 119.9 65.6 7.4 6.21988 184.6 121.7 65.9 6.7 5.51989 186.4 123.9 66.5 6.5 5.31990 188.0 124.8 66.4 6.9 5.51991 188.0 125.3 66.0 8.4 6.71992 189.8 127.0 66.3 9.4 7.41993 191.6 128.0 66.2 8.7 6.81994 193.6 131.1 66.6 8.0 6.11995 196.8 132.3 66.6 7.4 5.61996 198.6 133.9 66.8 7.2 5.41997 200.6 136.3 67.1 6.7 4.91998 203.1 137.7 67.1 6.2 4.51999 205.2 139.4 67.1 5.9 4.22000 207.8 140.9 67.2 5.6 4.02001 211.9 141.8 66.9 6.7 4.82002 214.0 142.5 66.6 8.3 5.82003 221.3 146.5 66.2 9.1 6.2

Labor Force Data 2003Labor Force Data 2003Labor Force Data 2003Labor Force Data 2003

10


Labor Force Data 2003Labor Force Data 2003Labor Force Data 2003Labor Force Data 2003

Year 2003 Labor Force Data (millions)

74.5

9.1

146.5

Year 2003 Labor Force Data (millions)

74.5

9.1

146.5

Population age Population age 16 and over – 16 and over – 211.9 mil211.9 mil

Population age Population age 16 and over – 16 and over – 211.9 mil211.9 mil

11


Labor Force Participation Labor Force Participation Rates for Men and WomenRates for Men and WomenLabor Force Participation Labor Force Participation Rates for Men and WomenRates for Men and Women

0

10

20

30

40

50

60

70

80

Rate(%)

19791980198119851990199519961997199819992000200120022003

Years Men Women

0

10

20

30

40

50

60

70

80

Rate(%)

19791980198119851990199519961997199819992000200120022003

Years Men Women

12


The economy must steadily create more jobs The economy must steadily create more jobs each month, as more Americans enter the labor each month, as more Americans enter the labor force each month.force each month.If job creation lags behind the increase in the If job creation lags behind the increase in the labor force, then some job seekers will be labor force, then some job seekers will be unable to find work, and unemployment will unable to find work, and unemployment will increase.increase.Labor force participation and job creation are Labor force participation and job creation are dependent on each other. dependent on each other.

The economy must steadily create more jobs The economy must steadily create more jobs each month, as more Americans enter the labor each month, as more Americans enter the labor force each month.force each month.If job creation lags behind the increase in the If job creation lags behind the increase in the labor force, then some job seekers will be labor force, then some job seekers will be unable to find work, and unemployment will unable to find work, and unemployment will increase.increase.Labor force participation and job creation are Labor force participation and job creation are dependent on each other. dependent on each other.



13


Unemployment Rate DetailsUnemployment Rate DetailsUnemployment Rate DetailsUnemployment Rate Details

o A person is counted A person is counted as employed as long as employed as long as they work at least as they work at least one hour per week or one hour per week or more for pay.more for pay.

o Work in a family Work in a family business without pay business without pay for at least 15 hour for at least 15 hour per week is counted per week is counted as being employed.as being employed.

o A person is counted A person is counted as employed as long as employed as long as they work at least as they work at least one hour per week or one hour per week or more for pay.more for pay.

o Work in a family Work in a family business without pay business without pay for at least 15 hour for at least 15 hour per week is counted per week is counted as being employed.as being employed.

o Full time students Full time students are not counted as are not counted as employed.employed.

o Full time students Full time students are also not counted are also not counted as being unemployed, as being unemployed, unless they are unless they are looking for jobs.looking for jobs.

o Full time students Full time students are not counted as are not counted as employed.employed.

o Full time students Full time students are also not counted are also not counted as being unemployed, as being unemployed, unless they are unless they are looking for jobs.looking for jobs.

14


Historical U.S.Unemployment Historical U.S.Unemployment Rates for Selected yearsRates for Selected years

Historical U.S.Unemployment Historical U.S.Unemployment Rates for Selected yearsRates for Selected years

YearUnemployment

Rate1947 3.91950 5.31955 4.41960 5.51965 4.51970 4.91975 8.51980 7.11985 7.21990 5.61991 6.81992 7.51993 6.91994 6.11995 5.61996 5.41997 4.91998 4.51999 4.22000 4.02001 4.82002 5.82003 6.2

YearUnemployment

Rate1947 3.91950 5.31955 4.41960 5.51965 4.51970 4.91975 8.51980 7.11985 7.21990 5.61991 6.81992 7.51993 6.91994 6.11995 5.61996 5.41997 4.91998 4.51999 4.22000 4.02001 4.82002 5.82003 6.2

15


Discouraged WorkersDiscouraged WorkersDiscouraged WorkersDiscouraged Workers

Discouraged workersDiscouraged workers are workers who are workers who would like to have a job, but have tried would like to have a job, but have tried unsuccessfully to find one in the past and have unsuccessfully to find one in the past and have given up looking.given up looking. Because they have stopped looking, Because they have stopped looking, discouraged workers are not counted in the discouraged workers are not counted in the unemployment statistics.unemployment statistics.Not counting discouraged workers Not counting discouraged workers understates the true unemployment rate.understates the true unemployment rate.

Discouraged workersDiscouraged workers are workers who are workers who would like to have a job, but have tried would like to have a job, but have tried unsuccessfully to find one in the past and have unsuccessfully to find one in the past and have given up looking.given up looking. Because they have stopped looking, Because they have stopped looking, discouraged workers are not counted in the discouraged workers are not counted in the unemployment statistics.unemployment statistics.Not counting discouraged workers Not counting discouraged workers understates the true unemployment rate.understates the true unemployment rate.

16


Underground EconomyUnderground EconomyUnderground EconomyUnderground Economy

The The underground economyunderground economy refers to the market refers to the market transactions which go unreported.transactions which go unreported. Some of these goods and services are illegal and Some of these goods and services are illegal and thus not recorded in GDP.thus not recorded in GDP. Others are legal, but not reported so that their Others are legal, but not reported so that their producers may avoid paying taxes on the output.producers may avoid paying taxes on the output.The underground economy causes the reported The underground economy causes the reported unemployment rate to overstate true unemployment.unemployment rate to overstate true unemployment.

The The underground economyunderground economy refers to the market refers to the market transactions which go unreported.transactions which go unreported. Some of these goods and services are illegal and Some of these goods and services are illegal and thus not recorded in GDP.thus not recorded in GDP. Others are legal, but not reported so that their Others are legal, but not reported so that their producers may avoid paying taxes on the output.producers may avoid paying taxes on the output.The underground economy causes the reported The underground economy causes the reported unemployment rate to overstate true unemployment.unemployment rate to overstate true unemployment.

17


Unemployment Rates by GroupUnemployment Rates by GroupUnemployment Rates by GroupUnemployment Rates by Group

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Unemployment Rate

1980198519901991199219931994199519961997199819992000200120022003

Years White

Black

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Unemployment Rate

1980198519901991199219931994199519961997199819992000200120022003

Years White

Black

18


Duration of UnemploymentDuration of UnemploymentDuration of UnemploymentDuration of Unemployment

0123456789

10

Total 0-4Weeks

5-14Weeks

15-26Weeks

27Weeks

and over

Unemployment(In millions)

0123456789

10

Total 0-4Weeks

5-14Weeks

15-26Weeks

27Weeks

and over

Unemployment(In millions)

19


Unemployment by CountryUnemployment by CountryUnemployment by CountryUnemployment by Country

0

2

4

6

8

10

12

Unemployment Rate

2000 2001 2002 2003

Year

Canada

Japan

France

Germany

Sweden

United States

0

2

4

6

8

10

12

Unemployment Rate

2000 2001 2002 2003

Year

Canada

Japan

France

Germany

Sweden

United States

20


6.2 IDENTIFYING TYPES OF 6.2 IDENTIFYING TYPES OF UNEMPLOYMENTUNEMPLOYMENT FrictionalFrictional - associated with entering the labor - associated with entering the labor market or switching jobsmarket or switching jobs SeasonalSeasonal - unemployment that can be predicted - unemployment that can be predicted or recur periodicallyor recur periodically StructuralStructural - caused by a mismatch between a - caused by a mismatch between a person’s human capital and that needed in the person’s human capital and that needed in the workplaceworkplace Cyclical Cyclical - resulting from downturns in economic - resulting from downturns in economic activity (i.e. the business cycle)activity (i.e. the business cycle)

FrictionalFrictional - associated with entering the labor - associated with entering the labor market or switching jobsmarket or switching jobs SeasonalSeasonal - unemployment that can be predicted - unemployment that can be predicted or recur periodicallyor recur periodically StructuralStructural - caused by a mismatch between a - caused by a mismatch between a person’s human capital and that needed in the person’s human capital and that needed in the workplaceworkplace Cyclical Cyclical - resulting from downturns in economic - resulting from downturns in economic activity (i.e. the business cycle)activity (i.e. the business cycle)

21


Seasonal unemploymentSeasonal unemployment affects workers affects workers in agriculture, tourism related in agriculture, tourism related occupations, education, tax accounting, occupations, education, tax accounting, professional sports, and some other professional sports, and some other industries.industries.

Seasonal unemployment can be planned for, Seasonal unemployment can be planned for, and is of little concern as it is “part of the and is of little concern as it is “part of the job”.job”.

Seasonal unemploymentSeasonal unemployment affects workers affects workers in agriculture, tourism related in agriculture, tourism related occupations, education, tax accounting, occupations, education, tax accounting, professional sports, and some other professional sports, and some other industries.industries.

Seasonal unemployment can be planned for, Seasonal unemployment can be planned for, and is of little concern as it is “part of the and is of little concern as it is “part of the job”.job”.

Types of UnemploymentTypes of UnemploymentTypes of UnemploymentTypes of Unemployment

22


Frictional unemploymentFrictional unemployment occurs when occurs when people are between jobs, or waiting to people are between jobs, or waiting to start their first job.start their first job.

It is usually a brief period of time.It is usually a brief period of time.

Changing jobs does not imply frictional Changing jobs does not imply frictional unemployment.unemployment.

Unemployment due to layoffs and firings Unemployment due to layoffs and firings does result in frictional unemployment.does result in frictional unemployment.

Frictional unemploymentFrictional unemployment occurs when occurs when people are between jobs, or waiting to people are between jobs, or waiting to start their first job.start their first job.

It is usually a brief period of time.It is usually a brief period of time.

Changing jobs does not imply frictional Changing jobs does not imply frictional unemployment.unemployment.

Unemployment due to layoffs and firings Unemployment due to layoffs and firings does result in frictional unemployment.does result in frictional unemployment.


23


Structural changes in the economy can give rise Structural changes in the economy can give rise to to structural unemploymentstructural unemployment..

This occurs when demand for some types of goods and This occurs when demand for some types of goods and services gives rise to demand for others.services gives rise to demand for others.

Workers with outdated skills , which are no Workers with outdated skills , which are no longer in demand exemplify structural longer in demand exemplify structural unemployment.unemployment.

These workers must be retrained to re-enter the These workers must be retrained to re-enter the workforce.workforce.

Geographical immobility gives rise to structural Geographical immobility gives rise to structural unemployment.unemployment.

Structural changes in the economy can give rise Structural changes in the economy can give rise to to structural unemploymentstructural unemployment..

This occurs when demand for some types of goods and This occurs when demand for some types of goods and services gives rise to demand for others.services gives rise to demand for others.

Workers with outdated skills , which are no Workers with outdated skills , which are no longer in demand exemplify structural longer in demand exemplify structural unemployment.unemployment.

These workers must be retrained to re-enter the These workers must be retrained to re-enter the workforce.workforce.

Geographical immobility gives rise to structural Geographical immobility gives rise to structural unemployment.unemployment.


24


Specific human capitalSpecific human capital is often specific to a is often specific to a particular firm or job. particular firm or job.

These workers are prone to structural These workers are prone to structural unemployment.unemployment.

General human capitalGeneral human capital is easily transferred is easily transferred from job to job.from job to job.

Without structural unemployment, there would Without structural unemployment, there would be no progress, therefore it is a necessary part be no progress, therefore it is a necessary part of economic evolution.of economic evolution.

Specific human capitalSpecific human capital is often specific to a is often specific to a particular firm or job. particular firm or job.

These workers are prone to structural These workers are prone to structural unemployment.unemployment.

General human capitalGeneral human capital is easily transferred is easily transferred from job to job.from job to job.

Without structural unemployment, there would Without structural unemployment, there would be no progress, therefore it is a necessary part be no progress, therefore it is a necessary part of economic evolution.of economic evolution.


25


Cyclical unemploymentCyclical unemployment is a systematic disorder is a systematic disorder caused by downturns in the business cycle.caused by downturns in the business cycle.Cyclical unemployment is a temporary Cyclical unemployment is a temporary phenomena since recessions are temporary.phenomena since recessions are temporary.As the economy pulls out of a recession, job As the economy pulls out of a recession, job creation leads to a number of the cyclically creation leads to a number of the cyclically unemployed to either go back to their old jobs, unemployed to either go back to their old jobs, or find new jobs.or find new jobs.In contrast the higher unemployment in 2002 In contrast the higher unemployment in 2002 and 2003 was associated with the so-called and 2003 was associated with the so-called jobless recovery.jobless recovery.

Cyclical unemploymentCyclical unemployment is a systematic disorder is a systematic disorder caused by downturns in the business cycle.caused by downturns in the business cycle.Cyclical unemployment is a temporary Cyclical unemployment is a temporary phenomena since recessions are temporary.phenomena since recessions are temporary.As the economy pulls out of a recession, job As the economy pulls out of a recession, job creation leads to a number of the cyclically creation leads to a number of the cyclically unemployed to either go back to their old jobs, unemployed to either go back to their old jobs, or find new jobs.or find new jobs.In contrast the higher unemployment in 2002 In contrast the higher unemployment in 2002 and 2003 was associated with the so-called and 2003 was associated with the so-called jobless recovery.jobless recovery.


26


Unemployed workers who qualify are able to Unemployed workers who qualify are able to collect government-provided unemployment collect government-provided unemployment payments to help tide them over during a spell payments to help tide them over during a spell of unemployment.of unemployment.

Workers who are laid off for economic reasons Workers who are laid off for economic reasons qualify for benefits, while workers who are fired do qualify for benefits, while workers who are fired do not.not.

The average weekly check was about $258.29 in The average weekly check was about $258.29 in 2002, and $276.60 in 2003.2002, and $276.60 in 2003.

Unemployed workers who qualify are able to Unemployed workers who qualify are able to collect government-provided unemployment collect government-provided unemployment payments to help tide them over during a spell payments to help tide them over during a spell of unemployment.of unemployment.

Workers who are laid off for economic reasons Workers who are laid off for economic reasons qualify for benefits, while workers who are fired do qualify for benefits, while workers who are fired do not.not.

The average weekly check was about $258.29 in The average weekly check was about $258.29 in 2002, and $276.60 in 2003.2002, and $276.60 in 2003.

6.3 6.3 UNEMPLOYMENT INSURANCE AND UNEMPLOYMENT INSURANCE AND THE NATIONAL RATE OF THE NATIONAL RATE OF UNEMPLOYMENTUNEMPLOYMENT

6.3 6.3 UNEMPLOYMENT INSURANCE AND UNEMPLOYMENT INSURANCE AND THE NATIONAL RATE OF THE NATIONAL RATE OF UNEMPLOYMENTUNEMPLOYMENT

27


Unemployment InsuranceUnemployment InsuranceUnemployment InsuranceUnemployment Insurance

Unemployment benefits vary from state to state.Unemployment benefits vary from state to state.Unemployment insurance contributes to a higher Unemployment insurance contributes to a higher unemployment rate, since workers who receive unemployment rate, since workers who receive these benefits have a longer duration of these benefits have a longer duration of unemployment.unemployment.Unemployment is costly to the economy in two Unemployment is costly to the economy in two ways.ways.

It cost taxpayer dollars.It cost taxpayer dollars.It decreases the economy’s output, and lowers living It decreases the economy’s output, and lowers living standards.standards.

Unemployment benefits vary from state to state.Unemployment benefits vary from state to state.Unemployment insurance contributes to a higher Unemployment insurance contributes to a higher unemployment rate, since workers who receive unemployment rate, since workers who receive these benefits have a longer duration of these benefits have a longer duration of unemployment.unemployment.Unemployment is costly to the economy in two Unemployment is costly to the economy in two ways.ways.

It cost taxpayer dollars.It cost taxpayer dollars.It decreases the economy’s output, and lowers living It decreases the economy’s output, and lowers living standards.standards.

28


The Growth in the Average Weekly The Growth in the Average Weekly Unemployment BenefitUnemployment Benefit

The Growth in the Average Weekly The Growth in the Average Weekly Unemployment BenefitUnemployment Benefit

Year Average Weekly Check

1980 $98.95

1985 128.09

1990 161.20

1995 187.04

1996 189.27

1997 192.84

1998 200.58

1999 212.01

2000 221.01

2002 258.29

2003 260.60

29


The unemployment rate does not tend The unemployment rate does not tend towards zero, exactly.towards zero, exactly.

Rather the long-run tendency is for Rather the long-run tendency is for unemployment to settle at a few percentage unemployment to settle at a few percentage points above zero, due to the inevitable points above zero, due to the inevitable presence of seasonal, frictional, and presence of seasonal, frictional, and structural unemployment.structural unemployment.

The minimum long-run sustainable level of The minimum long-run sustainable level of unemployment is termed unemployment is termed the natural rate of the natural rate of unemployment.unemployment.

The unemployment rate does not tend The unemployment rate does not tend towards zero, exactly.towards zero, exactly.

Rather the long-run tendency is for Rather the long-run tendency is for unemployment to settle at a few percentage unemployment to settle at a few percentage points above zero, due to the inevitable points above zero, due to the inevitable presence of seasonal, frictional, and presence of seasonal, frictional, and structural unemployment.structural unemployment.

The minimum long-run sustainable level of The minimum long-run sustainable level of unemployment is termed unemployment is termed the natural rate of the natural rate of unemployment.unemployment.

The Natural Rate of Unemployment

The Natural Rate of Unemployment

30


The natural rate of unemployment changes The natural rate of unemployment changes over time but is considered today to be 4 to 5% over time but is considered today to be 4 to 5% of the workforce.of the workforce.

The The full employment ratefull employment rate is the opposite of the is the opposite of the natural rate of unemployment.natural rate of unemployment.It equals 100% minus the natural rate of It equals 100% minus the natural rate of

unemployment.unemployment.

Because the natural rate of unemployment Because the natural rate of unemployment exceeds zero, full employment occurs when the exceeds zero, full employment occurs when the employment rate is less than 100%.employment rate is less than 100%.

The natural rate of unemployment changes The natural rate of unemployment changes over time but is considered today to be 4 to 5% over time but is considered today to be 4 to 5% of the workforce.of the workforce.

The The full employment ratefull employment rate is the opposite of the is the opposite of the natural rate of unemployment.natural rate of unemployment.It equals 100% minus the natural rate of It equals 100% minus the natural rate of

unemployment.unemployment.

Because the natural rate of unemployment Because the natural rate of unemployment exceeds zero, full employment occurs when the exceeds zero, full employment occurs when the employment rate is less than 100%.employment rate is less than 100%.

The Natural Rate of The Natural Rate of UnemploymentUnemployment

The Natural Rate of The Natural Rate of UnemploymentUnemployment

31


6.5 EXPLORE & APPLY6.5 EXPLORE & APPLYEmploying LaborEmploying Labor6.5 EXPLORE & APPLY6.5 EXPLORE & APPLYEmploying LaborEmploying Labor Employers incur expenses when hiring new Employers incur expenses when hiring new

employees associated with complying with employees associated with complying with employment laws and regulations.employment laws and regulations.

The hassles of hiring can be avoided by working The hassles of hiring can be avoided by working current employees longer hours or more current employees longer hours or more efficiently.efficiently.

Cost also increase from government mandated Cost also increase from government mandated protections for employees about to lose their jobs.protections for employees about to lose their jobs.

To avoid the cost of hiring, many employers are To avoid the cost of hiring, many employers are hiring more part time and temporary workers.hiring more part time and temporary workers.

Employers incur expenses when hiring new Employers incur expenses when hiring new employees associated with complying with employees associated with complying with employment laws and regulations.employment laws and regulations.

The hassles of hiring can be avoided by working The hassles of hiring can be avoided by working current employees longer hours or more current employees longer hours or more efficiently.efficiently.

Cost also increase from government mandated Cost also increase from government mandated protections for employees about to lose their jobs.protections for employees about to lose their jobs.

To avoid the cost of hiring, many employers are To avoid the cost of hiring, many employers are hiring more part time and temporary workers.hiring more part time and temporary workers.

32


Key TermsKey TermsKey TermsKey Terms

labor forcelabor forceunemployment rateunemployment rate labor force labor force

participationparticipationdiscouraged workersdiscouraged workersfrictional frictional

unemploymentunemployment

labor forcelabor forceunemployment rateunemployment rate labor force labor force

participationparticipationdiscouraged workersdiscouraged workersfrictional frictional

unemploymentunemployment

seasonal seasonal unemploymentunemployment

structural structural unemploymentunemployment

cyclical cyclical unemploymentunemployment

specific human specific human capitalcapital

seasonal seasonal unemploymentunemployment

structural structural unemploymentunemployment

cyclical cyclical unemploymentunemployment

specific human specific human capitalcapital

33


Key TermsKey TermsKey TermsKey Terms

general human capitalgeneral human capitalnatural rate of unemploymentnatural rate of unemploymentfull employmentfull employment

general human capitalgeneral human capitalnatural rate of unemploymentnatural rate of unemploymentfull employmentfull employment

34


Test YourselfTest YourselfTest YourselfTest Yourself

1.1. To Be counted as employed someone To Be counted as employed someone must workmust work

a.a. at least 1 hour a week for pay.at least 1 hour a week for pay.b.b. at least 15 hours a week.at least 15 hours a week.c.c. at least 35 hours a week.at least 35 hours a week.d.d. for at least as many hours as that for at least as many hours as that

person wants to work.person wants to work.

1.1. To Be counted as employed someone To Be counted as employed someone must workmust work

a.a. at least 1 hour a week for pay.at least 1 hour a week for pay.b.b. at least 15 hours a week.at least 15 hours a week.c.c. at least 35 hours a week.at least 35 hours a week.d.d. for at least as many hours as that for at least as many hours as that

person wants to work.person wants to work.

35



2.2. The civilian labor force does not includeThe civilian labor force does not include

a.a. workers under the age of 16.workers under the age of 16.

b.b. the unemployed.the unemployed.

c.c. part time workers.part time workers.

d.d. anyone working in a family business without anyone working in a family business without pay.pay.

2.2. The civilian labor force does not includeThe civilian labor force does not include

a.a. workers under the age of 16.workers under the age of 16.

b.b. the unemployed.the unemployed.

c.c. part time workers.part time workers.

d.d. anyone working in a family business without anyone working in a family business without pay.pay.

36



3.3. To be counted as unemployed, an individual To be counted as unemployed, an individual mustmust

a.a. not have a job.not have a job.b.b. not have a job and be looking for work.not have a job and be looking for work.c.c. not have a job, be looking for work, and be not have a job, be looking for work, and be

willing to accept the first job offer he or she willing to accept the first job offer he or she receives.receives.

d.d. have held a job in the past, not have a job have held a job in the past, not have a job now, be looking for work, be willing to accept now, be looking for work, be willing to accept the first job offer.the first job offer.

3.3. To be counted as unemployed, an individual To be counted as unemployed, an individual mustmust

a.a. not have a job.not have a job.b.b. not have a job and be looking for work.not have a job and be looking for work.c.c. not have a job, be looking for work, and be not have a job, be looking for work, and be

willing to accept the first job offer he or she willing to accept the first job offer he or she receives.receives.

d.d. have held a job in the past, not have a job have held a job in the past, not have a job now, be looking for work, be willing to accept now, be looking for work, be willing to accept the first job offer.the first job offer.

37



4.4. Discouraged workersDiscouraged workers

a.a. are counted among the employed.are counted among the employed.

b.b. are counted among the unemployed.are counted among the unemployed.

c.c. would increase the unemployment rate if they would increase the unemployment rate if they were counted among the unemployed.were counted among the unemployed.

d.d. have no effect on the labor force and have no effect on the labor force and unemployment statistics regardless of how or unemployment statistics regardless of how or whether they are counted.whether they are counted.

4.4. Discouraged workersDiscouraged workers

a.a. are counted among the employed.are counted among the employed.

b.b. are counted among the unemployed.are counted among the unemployed.

c.c. would increase the unemployment rate if they would increase the unemployment rate if they were counted among the unemployed.were counted among the unemployed.

d.d. have no effect on the labor force and have no effect on the labor force and unemployment statistics regardless of how or unemployment statistics regardless of how or whether they are counted.whether they are counted.

38



5.5. How does the underground economy affect How does the underground economy affect the measurement of unemployment?the measurement of unemployment?

a.a. It causes the reported unemployment rate to It causes the reported unemployment rate to be higher than the true unemployment rate.be higher than the true unemployment rate.

b.b. It causes the reported unemployment rate to It causes the reported unemployment rate to be lower than the true unemployment rate.be lower than the true unemployment rate.

c.c. It has no effect on the labor force and It has no effect on the labor force and unemployment rate.unemployment rate.

d.d. It affects the reported unemployment rate in It affects the reported unemployment rate in varyingvarying , but unpredictable ways., but unpredictable ways.

5.5. How does the underground economy affect How does the underground economy affect the measurement of unemployment?the measurement of unemployment?

a.a. It causes the reported unemployment rate to It causes the reported unemployment rate to be higher than the true unemployment rate.be higher than the true unemployment rate.

b.b. It causes the reported unemployment rate to It causes the reported unemployment rate to be lower than the true unemployment rate.be lower than the true unemployment rate.

c.c. It has no effect on the labor force and It has no effect on the labor force and unemployment rate.unemployment rate.

d.d. It affects the reported unemployment rate in It affects the reported unemployment rate in varyingvarying , but unpredictable ways., but unpredictable ways.

39



6.6. Which type of unemployment is Which type of unemployment is associated with a recession?associated with a recession?

a.a. frictional.frictional.

b.b. seasonal.seasonal.

c.c. structural.structural.

d.d. cyclical.cyclical.

6.6. Which type of unemployment is Which type of unemployment is associated with a recession?associated with a recession?

a.a. frictional.frictional.

b.b. seasonal.seasonal.

c.c. structural.structural.

d.d. cyclical.cyclical.

40


The End!The End!Next Chapter 7Next Chapter 7

InflationInflation

Date post:	31-Dec-2015
Category:	Documents
Upload:	stephanie-carroll
View:	221 times
Download:	5 times

© 2005 Prentice Hall Publishing ECONOMICS: Explore & Apply, Enhanced Edition Ayers/Collinge 1...

Documents