Chapter 15: Unemployment: Macroeconomic

Blacks

prime-age _____ have similar rates of labor-force participation as prime-age whites, but they have much higher rates of unemployment. (The BLS computes unemployment rates and the labor-force participation rate of various groups defined by race, gender, and so on in the U.S. Population.)

Saves and Invest

A country that ____ __ _____ a high fraction of its income, for instance, enjoys more rapid growth in its capital stock and GDP than a similar country that saves and invests less. (An even more obvious determinant of a country's standard of living is the amount of unemployment it typically experiences.People who would like to work but cannot find a job are not contributing to the economy's production of goods and services.)

Worker health

A firm may find it more profitable to pay high wages and have healthy, productive workers than to pay lower wages and have less healthy, less productive workers. (The first and simplest type of efficiency-wage theory emphasizes the link between wages and worker health.) (a type of efficiency wage theory)

Women and Men

As measured by labor-force participation, men and women are now playing a more equal role in the economy. (Women's role in American society has changed dramatically over the past century.) (In part, it is attributable to new technologies, such as the washing machine, clothes dryer, refrigerator, freezer, and dishwasher, which have reduced the amount of time required to complete routine household tasks. In part, it is attributable to improved birth control, which has reduced the number of children born to the typical family. And in part, it is attributable to changing political and social attitudes, which in turn may have been facilitated by the advances in technology and birth control)

sectoral shifts

Changes in the composition of demand among industries or regions are called ______ _____. Because it takes time for workers to search for jobs in the new sectors, ______ ______ temporarily cause unemployment.

international trade

Changing patterns of INTERNATIONAL TRADE are also a source of frictional unemployment. (As the world economy evolves, nations may find themselves importing and exporting different goods than they have in the past. Workers will therefore need to move among industries. As they make this transition, they may find themselves unemployed for a period of time)

Efficiency wage theory

Efficiency-wage theory states that such a constraint on firms is unnecessary because, in some cases, firms may be better off keeping wages above the equilibrium level. (According to this theory, firms operate more efficiently if wages are above the equilibrium level. Therefore, it may be profitable for firms to keep wages high even in the presence of a surplus of labor.)

Current Population Survey

Every month, the BLS produces data on unemployment and on other aspects of the labor market, including types of employment, length of the average workweek, and the duration of unemployment. These data come from a regular survey of about 60,000 households, called the ______ ________ ______

Men's reason to be out of labor force

First, young men now stay in school longer than their fathers and grandfathers did. Second, older men now retire earlier and live longer. Third, with more women employed, more fathers now stay at home to raise their children. (Full-time students, retirees, and stay-at-home dads are all counted as being out of the labor force.)

changing

Frictional unemployment is inevitable simply because the economy is always __________. (For example, in the U.S. economy from 2006 to 2016, employment fell by in construction and million in manufacturing. During the same period, employment rose by in computer systems design, million in food services, and million in healthcare)

Firms

Frictional unemployment is often the result of changes in the demand for labor among different FIRMS. (When consumers decide that they prefer Ford cars to General Motors cars, Ford INCREASES employment and General Motors LAYS OFF workers. The former General Motors workers must now search for new jobs, and Ford must decide which new workers to hire for the various jobs that have opened up.)

out of the labor force

Full-time students, retirees, and stay-at-home dads are all counted as being out of the labor force.

public policy

Government programs try to facilitate job search in various ways. One way is through government-run employment agencies, which give out information about job vacancies. Another way is through public training programs, which aim to ease workers' transition from declining to growing industries and to help disadvantaged groups escape poverty. (Advocates of these programs believe that they make the economy operate more efficiently by keeping the labor force more fully employed and that they reduce the inequities inherent in a constantly changing market economy.) (Some claim that job search decisions are best made privately by workers and employers.)

Worker Effort

High wages make workers more eager to keep their jobs and thus motivate them to put forward their best effort. If the wage were at the level that balanced supply and demand, workers would have less reason to work hard because if they were fired, they could quickly find new jobs at the same wage. (A fourth and final type of efficiency-wage theory emphasizes the link between wages and worker effort) (A type of efficiency-wage theory)

Wage

If the ____ is kept above the equilibrium level for any reason, the result is unemployment. Minimum-wage laws is considered as structural unemployment

short-term

If unemployment is ______-_____, one might conclude that it is not a big problem. Workers may require a few weeks between jobs to find the openings that best suit their tastes and skills.

company town

In a _________ ____, if workers do not accept the wages and working conditions that the firm offers, they have little choice but to move or stop working. In the absence of a union, therefore, the firm could use its market power to pay lower wages and offer worse working conditions than it would if it had to compete with other firms for the same workers. In this case, a union may be necessary to check the firm's market power and protect the workers from being at the mercy of the firm's owners. (Are unions good or bad for the economy?)

Wages

In most markets in the economy, PRICES adjust to bring quantity supplied and quantity demanded into balance. In an ideal labor market, WAGES would adjust to balance the quantity of labor supplied and the quantity of labor demanded. This adjustment of WAGES would ensure that all workers are always fully employed.

minimum-wage laws and unions

Minimum-wage laws and unions prevent firms from lowering wages in the presence of a surplus of workers

Teenagers

Minimum-wage laws matter most for the least skilled and least experienced members of the labor force, such as ________. Their equilibrium wages tend to be low and, therefore, are more likely to fall below the legal minimum. It is only among these workers that minimum-wage laws explain the existence of unemployment.

young, less educated, working part-time,

Minimum-wage workers tend to be....

Most spells of unemployment are short, but most unemployment observed at any given time is long-term.

Suppose that you visited the government's unemployment office every week for a year to survey the unemployed. Each week you find that there are four unemployed workers. Three of these workers are the same individuals for the whole year, while the fourth person changes every week. Based on this experience, would you say that unemployment is typically short-term or long-term?

1

The federal minimum wage directly affects about _ percent of all workers

About minimum wage

The industry with the highest proportion of workers with reported hourly wages at or below the minimum wage was leisure and hospitality Ex: primarily in restaurants and other food services. For many of these workers, tips supplement their hourly wages. The percentage of hourly paid workers earning the prevailing federal minimum wage or less has changed substantially over time. If it had, the minimum wage in 2017 would have been about $10 rather than $7.25 per hour.

Worker turnover

The more a firm pays its workers, the less often its workers will choose to leave. Thus, a firm can reduce turnover among its workers by paying them high wages. (A second type of efficiency-wage theory emphasizes the link between wages and worker turnover.) (a type of efficiency wage theory)

Long-run and short-run

The problem of unemployment can be divided into two categories: the ____-___problem and the _____-___ problem.

turnover

The quitting of a job (Workers quit jobs for many reasons: to take jobs at other firms, to move to other parts of the country, to leave the labor force, and so on. The frequency with which they quit depends on the entire set of incentives they face, including the benefits of leaving and the benefits of staying.) (Worker turnover)

Not in the labor force:

This category includes those who fit neither of the first two categories, such as full-time students, homemakers, and retirees. (Current Population Survey. Based on the answers to survey questions, the BLS places each adult (age 16 and older) in each surveyed household into one of three categories)

Unemployed

This category includes those who were not employed, were available for work, and HAD TRIED TO FIND A JOB during the previous four weeks. It also includes those waiting to be recalled to a job from which they had been laid off. (Actively looking for a job) (Current Population Survey. Based on the answers to survey questions, the BLS places each adult (age 16 and older) in each surveyed household into one of three categories)

Employed

This category includes those who worked as paid employees, worked in their own business, or worked as unpaid workers in a family member's business. Both full-time and part-time workers are counted. This category also includes those who were not working but who had jobs from which they were temporarily absent because of, for example, vacation, illness, or bad weather. (Current Population Survey. Based on the answers to survey questions, the BLS places each adult (age 16 and older) in each surveyed household into one of three categories)

Poorer countries Worker's health

This type of efficiency-wage theory can be relevant for explaining unemployment in less developed countries where inadequate nutrition can be a problem. In these countries, firms may fear that cutting wages would adversely influence their workers' health and productivity. (Worker's health)

unemployment insurance benefits does reduce the search effort of the unemployed.

Unemployment insurance benefits, rather than lasting forever, usually run out after 6 months or 1 year.

Job search, minimum-wage law, unions, and efficiency wages

What are the four explanation for the economy's natural rate of unemployment?

minimum-wage laws, unions, and efficiency wages

What are the three reasons for an above-equilibrium wage? (Structural unemployment: This occurs when the quantity of labor supplied exceeds the quantity demanded) (this kind of unemployment results when wages are set above the level that brings supply and demand into equilibrium._

Worker Quality

When a firm pays high wages, it attracts a better pool of workers to apply for its jobs and thereby increases the quality of its workforce. If the firm responded to a surplus of labor by reducing the wage, the most competent applicants—who are more likely to have better alternative opportunities than less competent applicants—may choose not to apply. (A third type of efficiency-wage theory emphasizes the link between wages and worker quality.) (a type of efficiency wage theory)

raises the wage

When a union RAISES THE WAGE above the equilibrium level, it raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in unemployment.

conspiracy in restraint of trade

When firms selling similar products agree to set high prices, the agreement is considered a "_________ __ ________ __ _______," and the government prosecutes the firms in civil and criminal court for violating the antitrust laws. Unions, however, are exempt from these laws.

incentive effects of unemployment insurance

When unemployed workers applied to collect UNEMPLOYMENT BENEFITS, the state randomly selected some of them and offered each a $500 bonus if they found new jobs within weeks. (This experiment shows that the design of the unemployment insurance system influences the effort that the unemployed devote to job search.)

minimum-wage laws

While _______-____ ___ are one reason unemployment exists in the U.S. economy, they do not affect everyone. The vast majority of workers have wages well above the legal minimum, so the law does not prevent most wages from adjusting to balance supply and demand. (When the wage is above the equilibrium level, the quantity of labor supplied exceeds the quantity of labor demanded, and workers are unemployed because they are waiting for jobs to open up.)

People respond to incentives

While unemployment insurance reduces the hardship of unemployment, it also increases the amount of unemployment. Because unemployment benefits stop when a worker takes a new job, the unemployed devote less effort to job search and are more likely to turn down unattractive job offers.

BLS (Bureau of Labor Statistics)

Who measures unemployment? which is part of the Department of Labor. Every month, the ___ produces data on unemployment and on other aspects of the labor market, including types of employment, length of the average workweek, and the duration of unemployment. (How is unemployment measured?)

The reason is that it is costly for firms to hire and train new workers.

Why do firms care about turnovers? (newly hired workers are not as productive as experienced ones. Firms with higher turnover, therefore, will tend to have higher production costs. Firms may find it profitable to pay wages above the equilibrium level to reduce worker turnover.)

Because people move into and out of the labor force so often

Why is unemployment rate is so hard to measure? (Movements into and out of the labor force are, in fact, common. More than one-third of the unemployed are recent entrants into the labor force. These entrants include young workers looking for their first jobs. They also include, in greater numbers, older workers who had previously left the labor force but have now returned to look for work. Moreover, not all unemployment ends with the job seeker finding a job.)

The novel insight of efficiency-wage theory is that paying higher wages might increase profitability by increasing the efficiency of a firm's workers.

Why should firms want to keep wages high?

better off

Workers who remain employed at the higher wage are BETTER OFF, but those who were previously employed and are now unemployed are worse off. (UNIONS)

long-term

Yet if unemployment is ____-____, one might conclude that it is a serious problem. Workers unemployed for many months are more likely to suffer economic and psychological hardship.

Women

_____ of prime working age (25 to 54 years old) have lower rates of labor-force participation than men, but once in the labor force, men and women have similar rates of unemployment. (The BLS computes unemployment rates and the labor-force participation rate of various groups defined by race, gender, and so on in the U.S. Population.)

advocates

_______ of unions also claim that unions are important for helping firms respond efficiently to workers' concerns. Whenever a worker takes a job, the worker and the firm must agree on many attributes of the job in addition to the wage: hours of work, overtime, vacations, sick leave, health benefits, promotion schedules, job security, and so on. By representing workers' views on these issues, unions help firms provide the right mix of job attributes. Even if unions have the adverse effect of pushing wages above the equilibrium level and causing unemployment, they have the benefit of helping firms keep a happy and productive workforce.

teenagers

________ have much lower rates of labor-force participation and much higher rates of unemployment than older workers. (The BLS computes unemployment rates and the labor-force participation rate of various groups defined by race, gender, and so on in the U.S. Population.)

unemployment insurance

a government program that partially protects workers' incomes when they become unemployed. (receives 50% of his former wages for weeks.) (Unemployment insurance benefits, rather than lasting forever, usually run out after 6 months or 1 year.) The unemployed who quit their jobs, were fired for cause, or just entered the labor force are not eligible. Benefits are paid only to the unemployed who were laid off because their previous employers no longer needed their skills. (One government program that increases the amount of frictional unemployment, without intending to do so, is __________ _____)

union

a worker association that bargains with employers over wages and working conditions When a union bargains with a firm, it asks for higher wages, better benefits, and better working conditions than the firm would offer in the absence of a union. (a union is a group of sellers acting together in the hope of exerting their joint market power.)

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

Regions

different REGIONS of the country produce different goods, employment can rise in one region while it falls in another. (Consider, for instance, what happens when the world price of oil falls. Oil-producing firms in Texas and North Dakota respond to the lower price by cutting back on production and employment. At the same time, cheaper gasoline stimulates car sales, so auto-producing firms in Michigan and Ohio raise production and employment. The opposite happens when the world price of oil rises.)

natural

does not mean that this rate of unemployment is desirable. Nor does it mean that it is constant over time or impervious to economic policy. It just means that this unemployment does not go away on its own even in the long run.

union workers

earn about to percent more than similar workers who do not belong to unions. (The economics of union)

discouraged workers

individuals who would like to work but have given up looking for a job (Out of the labor force) (Do not show up in unemployment statistics, even though they are truly prospective workers who cannot find jobs.) (Difficulty in measuring unemployment)

Job loss

means a lower living standard in the present, anxiety about the future, and reduced self-esteem. (Most people rely on their labor earnings to maintain their standard of living, and many people also get a sense of personal accomplishment from working.)

National Labor Relations Act

prohibits employers from interfering in certain ways with workers trying to organize unions, and in unionized companies, it requires employers and unions to bargain in good faith when negotiating the terms of employment.

natural rate of unemployment

refers to the amount of unemployment that the economy normally experiences. the normal rate of unemployment around which the unemployment rate fluctuates

Cyclical unemployment

refers to the year-to-year fluctuations in unemployment around its natural rate and is closely associated with the short-run fluctuations in economic activity. the deviation of unemployment from its natural rate (We examine the determinants of cyclical unemployment when we study short-run economic fluctuations later in this book. In this chapter, we focus on the determinants of an economy's natural rate of unemployment.)

"umemployed"

some of those who report being unemployed may not, in fact, be trying hard to find a job. They may be calling themselves unemployed because they want to qualify for a government program that gives financial assistance to the unemployed or because they are working but paid "under the table" to avoid taxes on their earnings.

strike

the organized withdrawal of labor from a firm by a union Because a _____ reduces production, sales, and profit, a firm facing a strike threat is likely to agree to pay higher wages than it otherwise would. (When a union bargains with a firm, it asks for higher wages, better benefits, and better working conditions than the firm would offer in the absence of a union. If the union and the firm do not reach agreement, the union can organize a withdrawal of labor from the firm, called a _____) (If such a law were enacted, striking workers would no longer face the threat of losing their jobs to permanent replacements, making strikes more viable and thereby increasing unions' market power.)

labor-force participation rate

the percentage of the adult population that is in the labor force Labor-force participation rate= Labor force/ Adult Population x100 (The BLS uses the same survey to produce data on labor-force participation.)

unemployment rate

the percentage of the labor force that is unemployed Unemployed = Number of unemployed/ Labor force x100 (The BLS computes unemployment rates for the entire adult population and for specific demographic groups defined by race, gender, and so on.)

collective bargaining

the process by which unions and firms agree on the terms of employment

Job search

the process by which workers find appropriate jobs given their tastes and skills (One reason economies always experience some unemployment is job search.)

labor force

the total number of workers, including both the employed and the unemployed (as the sum of the employed and the unemployed.) Labor force = Number of employed + Number of Unemployed (Once the BLS has placed all the individuals covered by the survey in a category, it computes various statistics to summarize the state of the labor market.)

zero

the unemployment rate never falls to ____; instead, it fluctuates around the natural rate of unemployment.

frictional unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills (One of the four reasons that explains unemployment in the long-run.)

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one. This occurs when the quantity of labor supplied exceeds the quantity demanded. (three of the four reasons that explains unemployment in the long-run: minimum-wage laws, unions, and efficiency wages. ) (it is often thought to explain longer spells of unemployment.)

cartel

union is a type of _____. When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to be unemployed, and reduce the wages in the rest of the economy. (critics argue, is both inefficient and inequitable. It is inefficient because high union wages reduce employment in unionized firms below the efficient, competitive level. It is inequitable because some workers benefit at the expense of other workers.) (Are unions good or bad for the economy?)

insiders

unions are often thought to cause conflict between different groups of workers—between the _______ who benefit from high union wages and the outsiders who do not get the union jobs.

outsiders

unions are often thought to cause conflict between different groups of workers—between the insiders who benefit from high union wages and the ________ who do not get the union jobs. The _______ can respond to their status in one of two ways. Some of them remain unemployed and wait for the chance to become insiders and earn the high union wage. Others take jobs in firms that are not unionized.

company town

where a single firm does most of the hiring in a geographical region. (Bad for employment, will cause unemployment)

right-to-work laws

which bar a union and employer from requiring workers to financially support the union. Absent such laws, a union can seek an agreement during collective bargaining that requires all employees to pay either union dues (for union members) or an agency fee (for nonmembers) as a condition of employment