MacEcon Ch 8 Self-Check and Review Questions

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.

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

A person is employed if they are working, even part-time. A person is unemployed if they are looking for a job but are unable to find one.

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

A person who is "unemployed" is trying, but unable, to find a job. A person "out of the labor force" is not working nor looking for work, such as a student or a retiree.

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 at Wal-Mart are you considered employed or not in the labor force?

All three of these examples count as employed, since they are working in some sort of job.

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.

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

Contracts often prevent wages from adjusting quickly, and workers have a strong resistance to wage decreases, so wage adjustments downward are politically difficult for firms to manage rapidly.

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

Cyclical unemployment rises during a contraction and falls during an expansion of the economy.

What is frictional unemployment? Give examples of frictional unemployment.

Frictional unemployment occurs in the time spent moving from one job to another. For example, if a worker leaves his job to pursue a different career or to start his own business, he is frictionally unemployed until he obtains a new job.

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

In general, the natural rate of unemployment should remain roughly the same over time barring any drastic reforms to public policy.

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, only adults who do not hold jobs but are in the labor force are unemployed.

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

No. Public policies can affect the natural rate of unemployment by imposing wage floors or regulations that make moving from job to job more difficult.

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

No. Unemployment rates vary wildly across demographics such as age and race.

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?

Since U.S. postwar recessions typically last less than one year, if the economy has positive growth for several years, the observed unemployment is likely to be mainly frictional and structural, that is, mainly due to the natural rate of unemployment, not cyclical unemployment.

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

Some structural and frictional unemployment is inevitable, even when wages are flexible. There may also be time delays while wages adjust during which there will be unemployment. Cyclical unemployment rises during a contraction and falls during an expansion of the economy.

What is structural unemployment? Give examples of structural unemployment.

Structural unemployment occurs when the skills of workers don't match what is demanded in the economy. For example, many workers in Detroit found themselves structurally unemployed when the American automobile industry fell into decline.

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.

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

The natural rate of unemployment is determined mainly by frictional unemployment, the unemployment that occurs when moving from job to job.

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

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

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

The unemployment rate doesn't account for discouraged workers or workers who are underemployed.

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

The unemployment rate drops as the labor force declines.

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%.

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

The unemployment rate is the number of unemployed people divided by the labor force. The labor force participation rate is the number of people in the labor force divided by the total population.

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

U.S. unemployment rates have generally been lower than in other high income countries.

What happens to the labor force participation rate when employed individuals are reclassified as unemployed? What happens when they are reclassified as discouraged workers?

When employed workers become unemployed, the labor force participation rate remains unchanged, but when unemployed works become discouraged, the labor force participation rate declines.

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 internet to promote an advertise their products. e. factory workers in the U.S. laid off as the plants shut down and move to Mexico and Ireland.

a. Cyclical b. Structural c. Frictional d. Structural e. Structural

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

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 unemployed. b. Unemployed. c. Not unemployed. d. Not unemployed. e. Unemployed. f. Not unemployed. g. Not unemployed. h. Not unemployed.