Economics 101 - Chapter 6 - Unemployment

Reagan administration "inflation-threshold"

unemployment rate was between 6 & 7 %

Three factors distinguish frictional unemployment from other kinds of unemployment.

First, enough jobs exist for those who are frictionally unemployed—that is, there's adequate demand for labor. Second, individuals who are frictionally unemployed have the skills required for available jobs. Third, the period of job search will be relatively short.

The Bureau of Labor Statistics or the Census Bureau lists all part-rime workers as

Fully employed

The most visible impact of unemployment on individuals is

lost income

Full employment

4% unemployment

Lost Confidence

the experience of unemployment—of not being able to find a job when you want one—can be painful. This sensation isn't easily forgotten, even after one has finally found employment.

Suppose the economy has a frictional unemployment rate of 3%, structural unemployment rate of 2% and a cyclical rate of 1.5%. The economy's natural rate of unemployment is

5%

Congressional Targets

According to the Full Employment and Balanced Growth Act of 1978 (commonly called the Humphrey-Hawkins Act), our national goal is to attain a 4 percent rate of unemployment.

labor force

All persons over age 16 who are either working for pay or actively seeking paid employment. The same of the employed and unemployed

The Phantom Unemployed

Although discouraged and underemployed workers aren't counted in official unemployment statistics, some of the people who are counted probably shouldn't be.

discouraged workers

An individual who isn't actively seeking employment but would look for or accept a job if one were available.

Frictional Unemployment

Brief periods of unemployment experienced by people moving between jobs or into the labor market.

The economy attains the natural rate of unemployment when ______ is absent

Cyclical unemployment

The official unemployment rate understates the problem of unemployment because it does not count which of the following as unemployed

Discouraged workers

Education

Education also affects the chances of being unemployed. If you graduate from college, your chances of being unemployed drop sharply, regardless of gender or race. Advancing technology and a shift to services from manufacturing have put a premium on better-educated workers. Very few people with master's or doctoral degrees stand in unemployment lines.

The number of people unemployed divided by the labor force.

Employed = 150,000 Labor Force = 160,000 Unemployed = 10,000 10,000/160,000 = 6.25%

Cheap Labor

Low wages are the primary motivation for all outsourcing

Unemployment Varies by Race and Sex

Minority groups, teenagers, and less-educated individuals experience higher rates of unemployment. Teenage unemployment rates are particularly high, especially for black and Hispanic youth.

To distinguish those people who want a job from those who don't, we separate the entire population into two distinct groups.

One group consists of labor force participants; the other group encompasses all nonparticipants.

Okun's law

One percent more unemployment is estimated to equal 2 percent less output. More recent estimates of Okun's law put the ratio at about 1 to 2, largely due to the changing composition of both the labor force (more women and teenagers) and output (more services). Using that 1-to-2 ratio allows us to put a dollar value on the aggregate cost of unemployment.

Labor force participants

Only those people who are either employed or actively seeking work are counted as part of the labor force. labor force/working age population

underemployment

People seeking full-time paid employment who work only part-time or are employed at jobs below their capability.

nonparticipants

People who are neither employed nor actively looking for a job

Productivity and Growth

Production possibilities expand, not contract, with outsourcing.

Social Stress

Studies have shown, however, that joblessness causes more crime, more health problems, more divorces, and other problems

production possibilities

The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.

unemployment

The inability of labor force participants to find jobs.

Labor Force Growth

The labor force continues to grow each year along with population increases and continuing immigration.

natural rate of unemployment

The long-term rate of unemployment determined by structural forces in labor and product markets. Equals the structural and frictional unemployment rate

Changed Labor Force

The number of teenagers declined by 3 million between 1981 and 1993. The upsurge in women's participation in the labor force also leveled off. High school and college attendance and graduation rates increased. And welfare programs were reformed in ways that encouraged more work.

labor force participation rate

The percentage of the working-age population working or seeking employment.

unemployment rate

The proportion of the labor force that is unemployed. Unemployment rate = Number of unemployed people / Labor force in 2016 = 7,751,000 / 159,187,000 = 4.9%

inflationary flashpoint

The rate of output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply.

outsourcing

The relocation of production to foreign countries.

Lost Lives

They estimate that the anxieties and other nervous disorders that accompany one year of unemployment can reduce life expectancy by as much as five years.

2 million persons to the labor force every year.

This is both good news and bad news. The good news is that labor force growth expands our production possibilities The bad news is that we've got to create at least 2 million more jobs every year to ensure that labor force participants can find a job. If we don't, we'll end up inside the production possibilities curve

cyclical unemployment

Unemployment attributable to a lack of job vacancies—that is, to an inadequate level of aggregate demand.

Structural Unemployment

Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.

seasonal unemployment

Unemployment due to seasonal changes in employment or labor supply.

The Unemployment Record

Unemployment rates reached record heights (25 percent) during the Great Depression. In more recent decades, the unemployment rate has varied from 4 percent in full-employment years to 10 percent in the recession years of 1982 and 2009. Keeping the labor force fully employed is a primary macro policy goal.

The Real Costs of Joblessness

Workers who lose their jobs not only lose paychecks but also experience a variety of personal and social setbacks

Unemployment rates fell dramatically during ______. In 1944 virtually anyone who was ready and willing to work quickly found a job; the civilian unemployment rate hit a rock-bottom 1.2 percent.

World War II

Four types of unemployment

frictional, structural, cyclical, seasonal

The ______ costs of unemployment include things like lost confidence, social stress, and lost lives

human

Small numbers

less than 300,000 jobs are outsourced

The number of discouraged workers in the economy is _________ related to the strength (or health) of the economy.

negatively

friction alone is responsible for an unemployment rate of 2 to 3 percent

our definition of "full employment" should allow for at least this much unemployment.

Inflationary Pressures

rising prices are a signal that employment is nearing capacity.

To keep unemployment rates low in the economy of tomorrow

this will require at least 2 million new jobs every year

our greatest failure to achieve full employment occurred during

the Great Depression

Insourcing

the creation of domestic jobs by foreign employers