Macroecon chap 8 Questions
U.S. Bureau of Labor Statistics: Unemployed
people who are not working but have looked for work during the previous 4 weeks; also includes those waiting to be recalled to a job from which they had been laid off
Recessionary period
unemployment rate is greater than 5%, inflation is falling
Inflationary period
unemployment rate is less than 5%, inflation is rising
Give an example of each of the three major types of unemployment: structural
Structural Unemployment -people whose job skills or education level are no longer useful -structure of economy changes or when technology replaces some workers w/ machines -serious b/c it takes time for workers to gain the needed skills to get re-employed
What government bureau calculates the unemployment rate? How often?
The Bureau of Labor statistics calculates the unemployment rate. It is calculated on the first Friday of every month. -uses Current population survey (conducted monthly)
U.S. Bureau of Labor Statistics: not in the labor force
everyone else; full-time students, homemakers, and retirees
U.S. Bureau of Labor Statistics: Employed
paid employees, self-employed, and unpaid workers in a family business; full time OR part time worker
. Is it possible to be not working and not unemployed at the same time? Explain!
Yes, because not everyone who is out of work is unemployed. In order to be counted as unemployed you have to be out of work, looking for work, and able to accept a job if one is offered to you (must be actively looking for work to be unemployed). If you are out of work and not looking, then you are considered "not in the labor force" rather than unemployed. -could be retired, institutionalized, stay at home parent... (if they don't meet the criteria to be considered a part of the labor force)
If the unemployment rate goes up is that necessarily bad news? Why or why not?
-IT DEPENDS!! the unemployment rate goes up, it is not necessarily bad news because it could mean that the economy is picking up due to more people looking for jobs; there are no fewer people working. -unemployment rate is a ratio of the number of people unemployed to the labor force, it's possible that an increase in the unemployment rate due to the increases of labor force
List the economic and social costs of unemployment?
-Okun's Law Unemployment is not felt equally in society: Some groups are hit much harder than other age groups young and old (for example). -different rates of unemployment depending on skin color, sex, education, nationality -can cause social upheaval (wealthy vs poor), interest, crime, depression, suicide, fatal illnesses
If the unemployment rate goes up is that necessarily bad news? Why or why not? continued...
-U.R goes up = it depends on the equation (could be yes or no) -When people join the labor force = increase in the probability of getting a job, expect to get a job sometime soon Increase in unemployment might not be a bad thing -Unemployed rate goes down = it depends (answer) IF a million people leave the labor force, unemployed rate goes down, but a lot of people stopped looking for work (depends on why people left the labor force) -Reasons: retire, won the lottery, when both people are unemployed are looking for work the other gets a job, other leaves the labor force, higher education -If 100,000 people started looking for work, the denominator and numerator would go up by 100,000 = ratio would go up = unemployment rate increases, but is it bad news? -Answer, no FEWER people working, means more people started to look for work = good news = economy is picking back up
What are several ways in which you can refer to the natural rate of unemployment?
-full employment line -Line where inflation is constant -line where unemployment is 5% -potential GDP -potential output
What are the three criteria necessary to be part of the labor force?
-must be 16 years old or older -must be non-institutionalized -must be either working or have looked for work within the last 4 weeks -labor force + employed + unemployed
List the shortcomings of the unemployment rate.
-not the same everywhere and for everyone (different states might have different rates) -not the same for gender, people of color, nationalities, and the young/old -there are part time workers who would rather be working full time who are not counted as unemployed -people who are underemployed based on their level of education or qualifications -people who have been unemployed for weeks or years -head of households and single parents who are unemployed -16 year olds who can't find work -discouraged workers who are no longer counted in workforce even though they could work if they find a job -unemployment might be more serious for certain groups
How natural rate of unemployment affects structural, frictional, and cyclical
-there is only STRUCTURAL and FRICTIONAL at natural rate of unemployment -cyclical unemployment is 0
The Natural Rate of Unemployment
-unemployment rate is assumed to be 5% in US -represents the rate of unemployment where the inflation rate is constant -full employment line = natural rate of unemployment =line where inflation is constant
Give an example of each of the three major types of unemployment: cyclical
Cyclical unemployment -workers who are laid off due to fluctuation in business cycle (recession) -economy crashing = millions of people are out of work -serious b/c the economy crashes (happens 4-7 years on average) -Everywhere on the full employment line = 0% for cyclical employment line (natural rate of employment) -Full employment = no cyclical unemployment
Give an example of each of the three major types of unemployment: frictional
Frictional employment -people who meet all the 3 criteria but maybe between jobs, first time entrants into the workforce, or newly graduated from high school or college and have just started looking for work -frictions: time it takes to find a job, being where the jobs are (location), job opportunities/information -type of unemployment is quite constant in number, but the composition of who is in this unemployment pool changes continuously
If the unemployment goes down, show mathematically and explain why this might not be such good news.
If unemployment goes down, this might NOT be good news because both the numerator and denominator will decrease, making the ratio decrease. The labor force will go down by equal amounts, which means people are leaving the workforce which is not good for economic growth. Less people in the workforce will mean production will also fall.
What is Okun's Law?
Okun's Law states that for every 1% of unemployment above the natural rate of unemployment, there is a 2% loss of GDP -translate the difference between the natural rate of unemployment and the actual rate of unemployment into the dollar value of the loss of GDP
What is the natural rate of unemployment, and what kind and how much unemployment exists at the natural rate of unemployment?
The natural rate of unemployment is the unemployment rate that would exist in a growing and healthy economy. In other words, it only includes frictional and structural unemployment. The natural rate of unemployment is 0% for cyclical unemployment. Unemployment only exists at 5% at the natural rate of unemployment.
What is the significance of the labor force in the definition and the calculation of the unemployment rate?
The significance of the labor force in the definition is that just because you are not working, does not mean you are unemployed. In order to be a part of the labor force as either unemployed or employed, you must be 16 years old or older, must be non-institutionalized, and you must be either working or have looked for work within the last 4 weeks. The calculation of the unemployment rate is # of people unemployed/the labor force x 100.
Using the BLS website, http://www.bls.gov/news.release/empsit.a.htm find the current size of the labor force and the current number of unemployed and calculate the unemployment rate. Compare this to the previous month's unemployment rate and determine if this change in the unemployment rate is good news or bad news? On what basis did you make your decision?
Unemployment rate = # of unemployed/labor force x 100 5,694/165,832 x 100 = 3.43% (Jan. 2023) 5,772/164,966 x 100 = 3.49% (Dec. 2022) This is good news because the unemployment rate went down, which means more people are in the labor force.
How is the unemployment rate calculated?
Unemployment rate = (# of people unemployed)/(the labor force) x 100
If the unemployment rate rises from 5% to 7% calculate the economic cost in terms of Okun's Law? Assume that the natural rate of unemployment is 5%.
Unemployment rate-natural rate of unemployment = 2% (7-5) Economic cost (Okun's Law) = 2% x 2% = 4% loss of GDP (multiplied it by another 2% b/c of Okun's law) -It's 4% because for every 1% unemployment rate above NRE, there is a 2% loss of GDP
How is the unemployment rate defined?
the percentage of the labor force that is unemployed -The unemployment rate is defined as the number of people "in the labor force" who are not working. It represents the number of unemployed people as a percentage of the labor force (labor force = sum of employed and unemployed).
