Macro Chapter 15
Labor force participation rate:
% of the adult population that is in the labor force LFPR = (labor force / adult population) X 100
Unemployment rate ("u-rate"):
% of the labor force that is unemployed U rate = (# of unemployed / labor force) X 100
Four reasons why firms might pay efficiency wages:
1. Worker health In less developed countries, poor nutrition is a common problem. Paying higher wages allows workers to eat better, makes them healthier, more productive. 2. Worker turnover Hiring & training new workers is costly. Paying high wages gives workers more incentive to stay, reduces turnover. 3. Worker quality Offering higher wages attracts better job applicants, increases quality of the firm's workforce. 4. Worker effort Workers can work hard or shirk. Shirkers are fired if caught. Is being fired a good deterrent? Depends on how hard it is to find another job. If market wage is above eq'm wage, there aren't enough jobs to go around, so workers have more incentive to work not shirk.
3 groups of population
1.Employed: paid employees, self-employed, and unpaid workers in a family business 2. Unemployed: people not working who have looked for work during previous 4 weeks 3. Not in the labor force: everyone else The labor force is the total # of workers, including the employed and unemployed.
Efficiency Wages
The theory of efficiency wages: Firms voluntarily pay above-equilibrium wages to boost worker productivity.
What Does the U-Rate Really Measure?
The u-rate is not a perfect indicator of joblessness or the health of the labor market: It excludes discouraged workers. It does not distinguish between full-time and part-time work, or people working part time because full-time jobs not available. Some people misreport their work status in the BLS survey. Despite these issues, the u-rate is still a very useful barometer of the labor market & economy.
Unions
a worker association that bargains with employers over wages, benefits, and working conditions Unions exert their market power to negotiate higher wages for workers. The typical union worker earns 20% higher wages and gets more benefits than a nonunion worker for the same type of work. -when unions raise the wage above eqm quantity
minimum wage laws
The min. wage may exceed the eq'm wage for the least skilled or experienced workers, causing structural unemployment.
unemployment insurance (UI)
a govt program that partially protects workers' incomes when they become unemployed -tends to increase frictional unemployment. -reduces uncertainty over incomes -gives the unemployment more time to search
The natural rate of unemployment consists of
frictional unemployment It takes time to search for the right jobs Occurs even if there are enough jobs to go around structural unemployment When wage is above eq'm, not enough jobs Due to min. wages, labor unions, efficiency wages and cyclical
job search
is the process of matching workers with appropriate jobs
Structural unemployment
occurs when there are fewer jobs than workers usually longer-term - occurs when not enough jobs to go around and when wage is kept above equil. -three reasons for this (minimum wages, unions, efficiency wages). -S.U. can be reduced by having more programs that help job seekers find jobs faster.
Frictional unemployment
occurs when workers spend time searching for the jobs that best suit their skills and tastes short-term for most workers
Natural rate of unemployment
the normal rate of unemployment around which the actual unemployment rate fluctuates
Are unions good or bad? Economists disagree.
Critics: Unions are cartels. They raise wages above eq'm, which causes unemployment and/or depresses wages in non-union labor markets. Advocates: Unions counter the market power of large firms, make firms more responsive to workers' concerns
cyclical unemployment
Economists describe cyclical unemployment as the result of businesses not having enough demand for labor to employ all those who are looking for work. The lack of employer demand comes from a lack of spending and consumption in the overall economy.
Summary
The unemployment rate is the percentage of those who would like to work who do not have jobs. Unemployment and labor force participation vary widely across demographic groups. The natural rate of unemployment is the normal rate of unemployment around which the actual rate fluctuates. Cyclical unemployment is the deviation of unemployment from its natural rate and is connected to short-term economic fluctuations. The natural rate includes frictional unemployment and structural unemployment. Frictional unemployment occurs when workers take time to search for the right jobs. Structural unemployment occurs when above- equilibrium wages result in a surplus of labor. Three reasons for above-equilibrium wages include minimum wage laws, unions, and efficiency wages.
The Duration of Unemployment
Typically 1/3 of the unemployed have been unemployed under 5 weeks, 2/3 have been unemployed under 14 weeks. Only 20% have been unemployed over 6 months. Yet, most observed unemployment is long term. The small group of long-term unemployed persons has fairly little turnover, so it accounts for most of the unemployment observed over time.
sectoral shifts
are changes in the composition of demand across industries or regions of the country.