ECON-CHAP 21

What forces create the natural rate of unemployment for an economy?

labor force characteristics, labor market institutions, government policies

Are U.S. unemployment rates typically higher, lower, or about the same as unemployment rates in other high-income countries?

low

After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?

mainly due to the natural rate of unemployment, cyclical would be 0

What term describes the remaining level of unemployment that occurs even when the economy is healthy?

natural rate of unemployment

Are U.S. unemployment rates distributed evenly across the population?

no

Would you expect the natural rate of unemployment to remain the same within one country over the long run of several decades?

no

insider-outsider model

those already working for the firm are "insiders" who know the procedures; the other workers are "outsiders" who are recent or prospective hires

out of the labor force

those who are not working and not looking for work—whether they want employment or not; also termed "not in the labor force"

discouraged workers

those who have stopped looking for employment due to the lack of suitable positions available

cyclical unemployment

unemployment closely tied to the business cycle, like higher unemployment during a recession

frictional unemployment

unemployment that occurs as workers move between jobs

structural unemployment

unemployment that occurs because individuals lack skills valued by employers

What is structural unemployment? Give examples of structural unemployment.

refers to a mismatch between the jobs available and the skill levels of the unemployed. Unlike cyclical unemployment, it's caused by forces other than the business cycle. It occurs when an underlying shift in the economy makes it difficult for some groups to find jobs.

labor force participation rate

this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job

If you are out of school but working part time, are you considered employed or unemployed in U.S. labor statistics? If you are a full time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greeter atWal-Mart are you considered employed or not in the labor force?

-unemployed - unemployed - employed

What are some of the problems with using the unemployment rate as an accurate measure of overall joblessness?

1. It may understate unemployment: -Distinguishing between people who are unemployed and not in the labor force requires judgment (should we exclude "discouraged workers"?) -Only measures employment, not intensity of employment (full-time vs. part-time; some people are underemployed) 2. It may overstate unemployment: -People might claim falsely to be actively looking for work -May claim not to be working to evade taxes or keep criminal activity unnoticed

What type of unemployment (cyclical, frictional, or structural) applies to each of the following: a. landscapers laid off in response to drop in new housing construction during a recession. b. coal miners laid off due to EPA regulations that shut down coal fired power c. a financial analyst who quits his/her job in Chicago and is pursing similar work in Arizona d. printers laid off due to drop in demand for printed catalogues and flyers as firms go the

A= cyclical B= structural C= frictional D= structural E= structural

Why is there unemployment in a labor market with flexible wages?

Ability to hire and fire. Looking at flexibility from the firm's point of view, a flexible labour market means that firms will have greater freedom to hire workers when demand increases, and also to fire them when demand decreases

Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big way. If we assume that wages are sticky in a downward direction, but that around 1970 the demand for labor equaled the supply of labor at the current wage rate, what do you imagine happened to the wage rate, employment, and unemployment as a result of increased labor force participation?

Because of the influx of women into the labor market, the supply of labor shifts to the right. Since wages are sticky downward, the increased supply of labor causes an increase in people looking for jobs (Qs), but no change in the number of jobs available (Qe). As a result, unemployment increases by the amount of the increase in the labor supply. This can be seen in the following figure. Over time, as labor demand grows, the unemployment will decline and eventually wages will begin to increase again. But this increase in labor demand goes beyond the scope of this problem.

Over the long term, has the U.S. unemployment rate generally trended up, trended down, or remained at basically the same level?

Over the long term, the U.S. unemployment rate has remained basically the same level.

Would you expect the natural rate of unemployment to be roughly the same in different countries?

different

Many college students graduate from college before they have found a job. When graduates begin to look for a job, they are counted as what category of unemployed?

New entrants to the labor force, whether from college or otherwise, are counted as frictionally unemployed until they find a job.

Are all adults who do not hold jobs counted as unemployed?

No

Is the increase in labor force participation rates among women better thought of as causing an increase in cyclical unemployment or an increase in the natural rate of unemployment? Why?

The increase in labor supply was a social demographic trend—it was not caused by the economy falling into a recession. Therefore, the influx of women into the work force increased the natural rate of unemployment.

Suppose the adult population over the age of 16 is 237.8 million and the labor force is 153.9 million (of whom 139.1 million are employed). How many people are "not in the labor force?" What are the proportions of employed, unemployed and not in the labor force in the population? Hint: Proportions are percentages.

The population is divided into those "in the labor force" and those "not in the labor force." Thus, the number of adults not in the labor force is 237.8 - 153.9 = 83.9 million. Since the labor force is divided into employed persons and unemployed persons, the number of unemployed persons is 153.9 - 139.1 = 14.8 million. Thus, the adult population has the following proportions: • 139.1/237.8 = 58.5% employed persons • 14.8/237.8 = 6.2% unemployed persons • 83.9/237.8 = 35.3% persons out of the labor force

Using the above data, what is the unemployment rate? These data are U.S. statistics from 2010. How does it compare to the February 2015 unemployment rate computed earlier?

The unemployment rate is defined as the number of unemployed persons as a percentage of the labor force or 14.8/ 153.9 = 9.6%. This is higher than the February 2015 unemployment rate, computed earlier, of 5.5%.

What happens to the unemployment rate when unemployed workers are reclassified as discouraged workers?

The unemployment rate is officially defined as unemployed workers as a percent of the labor force. ... Since discouraged workers are not actively searching for a job, they are considered nonparticipants in the labor market—that is, they are neither counted as unemployed nor included in the labor force

What is the difference between being unemployed and being out of the labor force?

Unemployment is when someone is actively searching, looking and seeking for employment and is unable to find work, have to be over the age of 16 and either lost their job or have unsuccessfully sought jobs in the last month. A notworking is someone that don't want to work, is not searching and seeking for jobs. For example, people that is studying and don't want to work, children's atschool, pensioners (retired), mothers or fathers taking care of children's in the house (this can be debated), sick people and everybody that for one or more reasons don't want and are not looking for jobs.

Name and explain some of the reasons why wages are likely to be sticky, especially in downward adjustments.

When wages are sticky that means wages do not fall when the demand for labor falls.

How is the unemployment rate calculated? How is the labor force participation rate calculated?

You calculate the labor force participation rate by dividing the number of people actively participating in the labor force by the total number of people eligible to participate in the labor force. You can then multiply the resulting quotient by 100 to get the percentage.

Assess whether the following would be counted as "unemployed" in the Current Employment Statistics survey. a. A husband willingly stays home with children while his wife works. b. A manufacturing worker whose factory just closed down. c. A college student doing an unpaid summer internship. d. A retiree. e. Someone who has been out of work for two years but keeps looking for a job. f. Someone who has been out of work for two months but isn't looking for a job. g. Someone who hates her present job and is actively looking for another one. h. Someone who decides to take a part time job because she could not find a full time position.

a- not counted b-has up to 4 weeks to look so, not counted c-not counted d- not counted e- counted f- not counted g- not counted h-not counted

Whose unemployment rates are commonly higher in the U.S. economy: a. Whites or nonwhites? b. The young or the middle-aged? c. College graduates or high school graduates?

a. Nonwhites b. The young c. High school graduates

relative wage coordination argument

across-the-board wage cuts are hard for an economy to implement, and workers fight against them

implicit contract

an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong

What criteria are used by the BLS to count someone as employed? As unemployed?

employed-People are considered employed if they did any work at all for pay or profit during the survey reference week. This includes all part-time and temporary work, as well as regular full-time, year-round employment. Individuals also are counted as employed if they have a job at which they did not work during the survey week, whether they were paid or not, because they were on vaca etc. unemployed-people are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.

When would you expect cyclical unemployment to be rising? Falling?

falling- recession raising-expansion

adverse selection of wage cuts argument

if employers reduce wages for all workers, the best will leave

underemployed

individuals who are employed in a job that is below their skills

What is frictional unemployment? Give examples of frictional unemployment.

relates to the time lag between a worker moving from one job to the next. Examples of frictional unemployment include quitting, termination, seasonal employment, term employment, and seeking a first-time job.

unemployment rate

the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

efficiency wage theory

the theory that the productivity of workers, either individually or as a group, will increase if they are paid more

natural rate of unemployment

the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time