Chapter 6 homework

• Question 6: Harry Keyser• Question 10: Kevin Kasparitis• Question 14: Fabian Lemp• Question 16: Thomas Trevor• Alternate: Jon Manning

Theory in Action…

• http://news.yahoo.com/s/afp/20070221/ts_alt_afp/usjapanautocompany_070221002126;_ylt=AmGijEzozUCCr8_ei2B8UdrlyREB Nissan Offers Voluntary Layoffs at Tennessee Plants Applied Topics: Derived demand, determinants of the demand for labor, production function

• The article examines Nissan's recent offer to workers. • Questions: • How is Nissan's offer to its workers for "buyouts" related to the

concept of derived demand? • How is it possible that the productivity of Nissan's workers has

increased but that the demand for labor at Nissan has decreased? (Hint: Is the production function the same for the new mix of vehicles to be produced this year as compared to 2006?)

Chapter 7

Unemployment and Employment

How Governments Increase Unemployment

• The U.S. government attempts to reduce the effects of frictional unemployment with unemployment insurance Benefits provided to people who

• are unemployed through no fault of their own

• are ready, willing and able to work

• are actively seeking work

How Governments Increase Unemployment (cont’d)

• Does unemployment insurance reduce the opportunity cost of not working too much??? Remain unemployed for a longer period than they

would if they didn’t receive it Some research says Yes

• In Europe, where unemployment benefits are more generous, unemployment rates are higher than in the U.S.

Figure 7.3 Average Unemployment Rates in Selected Industrial Economies: 1990–2004

The Social Consequences of Unemployment

• Economists and sociologists have noted that rising unemployment is associated with: Increased crime More domestic violence A higher incidence of mental illness Falling marriage and birth rates

The Social Consequences of Unemployment (cont’d)

• Unemployment also results in lost output for society as a whole. Less people working less output produced

• The relationship between unemployment and GDP is known as Okun’s Law: A 1% rise in the unemployment rate above the full

employment unemployment rate causes GDP to fall by about 2.5%.

Immigrants and Unemployment

• Does immigration take away jobs from U.S. citizens? Some research suggests a negative impact

on native-born workers. A country with high wages will attract

immigrants • Shift the supply of labor curve to the right

Drive wages down.

Figure 7.4 The Impact of Immigration on Domestic Wages and Employment

Immigrants and Unemployment

• But…really it is more complex. Immigrants may take jobs that native-

workers are unable or unwilling to take.

Trade and Unemployment

• What happens if the U.S. tries to keep wages and employment high by restricting immigration or trade? May cause an increase in imports of goods

and services from lower-wage counties. Restricting trade through tariffs and quotas

can lead to higher prices for consumers. Other countries may retaliate by keeping out

U.S. made goods and services.

Strategy and Policy• It all depends on how you count:

In July of 2004, the BLS reported that the economy had added 150,000 fewer jobs than had been expected, and yet the unemployment rate fell from 5.6% to 5.5%.• Two problems:

The employment data is collected from an establishment survey of 160,000 businesses and governmental agencies.

The unemployment rate is based on a household survey.

Playing with the numbers

• During the last presidential election both candidates (Bush and Kerry) picked out what they thought would help them from these numbers Kerry: addition of 150,000 fewer jobs

economy recovery slowing down Bush: unemployment rate fell from 5.6 to

5.5 economy showing steady improvement

Chapter 7 homework

• Numbers 2, 4, 10, 14, 16