Chapter 7 Macroeconomics

Shortcomings of the Unemployment Rate

1. Exclusions A. Discouraged Workers B. Underemployed Workers 2. It does not specify who is unemployed or how long they have been out of work.

Two Factors that affect frictional unemployment:

1. Information Availability A. the Internet enables workers and companies to find one another more quickly and to make better matches with substantially lower costs. 2. Government Policies A. Unemployment Insurance -Incentives* B. Regulations on Hiring and Firing Hiring: Who can and must be interviewed, paperwork that must be completed, and additional tax documents Firing: mandatory severance pay, written justification, and government fines

Major Groups not in the Labor Force

1. Retirees 2. Stay-at-Home Workers 3. Full-Time Students 4. Marginally Attached Workers Subset of 4. are discouraged workers

What was the U.S. unemployment rate for January 2018?

4.1%

Discouraged Workers

Are those who are not working, have looked for a job in the past 12 months and are willing to work, but have not sought employment in the past 4 weeks

Underemployed workers

Are those who have part-time jobs but who would prefer to work full-time

Gender and Race Labor Force Statistics

More Women are Working. LFPR has fallen. LFPR has significantly narrowed between men and women. The unemployment rate for black workers is consistently higher than for white workers.

Maintaining what rate is most appropriate?

Natural rate of unemployment

Unemployment

Occurs when a worker who is not currently employed is searching for a job without success

Creative Destruction

Occurs when the introduction of new products and technologies leads to the end of other industries and jobs

DOW Jones

It takes the stock prices from 30 major companies and averages them into one number. People often use that number as a clue for how the stock market is doing.

Full Employment Output, Y*

Also called potential output or potential GDP, is the output level produced in an economy when the unemployment rate is equal to the natural rate. Also called potential output or potential GDP. The output level sustainable for the long run.

Unemployment Insurance

Also known as federal jobless benefits, is a government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed.

An Evolving Economy

Farming/Agriculture--->Manufacturing (industry) jobs--->service-related jobs (i.e. teaching and accounting)

Labor Force

Includes people who are already employed or actively seeking work and are part of the eligible population (civilian, non-institutionalized, and age 16+). If a person has not sought a job in four weeks, that person is not counted in the labor force. Not included: retirees, stay-at-home parents, people who are in jail, military personnel, children under age 16, and many full-time students.

Labor Force Participation Rate

Is the percentage of the work-eligible population that is in the labor force

Natural Rate of Unemployment

Is the typical unemployment rate that occurs when the economy is growing normally. Economists never know the exact numerical value of this natural rate, in part because it changes over time. Currently, most economists feel that the natural rate of unemployment in the United States is near 5%.

Structural Unemployment

Is unemployment caused by changes in the industrial makeup (structure) of the economy. For example, improving technologies, to produce more and better output with fewer resources or fewer employees. Example: small independent booksellers-->Borders-->online booksellers, Amazon.com and e-readers

Frictional Unemployment

Is unemployment caused by delays in matching available jobs and workers. Example: McDonald's new product and its effects on Burger King. Lags in the labor market.

Cyclical Unemployment

Is unemployment caused by economic downturns. It menas that jobs are not available for many people who want to work. The root cause is an unhealthy economy. The duration is open-ended.

What are ways in which structural unemployment can be reduced?

Retrain, relocate, or change their expectations Establish job training programs and relocation subsidies

Unemployment Rate (u)

The percentage of the labor force that is unemployed.

The misconception that we should aim for zero unemployment.

We have seen that some unemployment remains during periods of economic expansion. Example: In 1970, policymakers tried to push unemployment down past natural levels by putting more money into the economy. This strategy led to other complications like inflation, but it failed to reduce unemployment.