Macro Module 5

Frictional

Frictional unemployment arises from the normal turnover in jobs and workers. When more people enter the labor market or when unemployment benefits increase, there will be more workers searching for jobs. Any dynamic and growing economy will experience frictional unemployment

Human Capital

Human capital includes all the skills workers have to use from their education, training, and experience.

Unemployment varies by race, education, and age:

Race: Unemployment rates vary considerably across racial groups. In 2010, the U.S. unemployment rate for whites and Asians averaged below the national rate of 10%, whereas Hispanics and blacks experienced much higher rates and duration of unemployment. Education:There has long been a dramatically different level of unemployment for high school dropouts (approximately 15% in 2010) compared to workers with bachelor's degrees or higher (approximately 4.5% in 2010). Age:The unemployment for younger workers is much higher than that of older, more experienced employees. In 2010, approximately one fourth of all teenagers in the labor force could not find work.

There are two ways for a person to be defined as unemployed:

A person must be available to work but unable to find it. In other words, an unemployed person is without work but is making an effort to find a job. A person waiting to be recalled back to a job from which they have been laid off is also counted as unemployed.

Unemployment Flows The size of the flows of workers is influenced by three main factors:

Demographic Change Unemployment Benefits Structural Change

Demographic Change

Demographic changes influence the extent to which workers search for jobs. An increase or decrease in the working-age population changes the number of new entrants in the labor market looking for work.

Other Measures of Unemployment

Discouraged Workers Marginally Attached Workers Involuntay Part-time Workers

Discouraged Workers

Discouraged workers include anyone who would like to work but has given up looking for a job. These people are not counted as part of the labor force and do not show up in the official unemployment rate. If the number of discouraged workers is rising, this is a sure sign that the economy is weakening.

Involuntary Part-time Workers

Involuntary part-time workers are adults working fewer than 34 hours per week but are looking for full-time work. They have been unable to find full-time work because of unfavorable business conditions. Although these workers have jobs, they are considered underemployed and the economy is not fully using all its labor resources.

Natural Resources

Natural resources are also necessary for production and include land, rivers, and mineral deposits.

Level of Productivity: This level of productivity depends not only on how many workers are available but also the following:

Physical Capital Human Capital Natual Resources Technological Knowledge

Physical Capital

Physical capital includes buildings and equipment used to produce goods and services.

Social Attitudes

Social attitudes have changed, allowing more families to decide to have two incomes. There are also many goods and services, such has home entertainment equipment, that households want and must therefore obtain a higher income level to purchase. That is, the desired standard of living for many U.S. households is higher, causing a need for a higher level of household income. The overall increase in the number of women with a college degree also contributes to the benefits they can get from working and their desire to be in the labor force.

Structural Change

Structural changes in the economy influence the extent to which workers are searching for jobs. The skills workers need for different jobs are constantly changing. New technologies and new processes will influence the ease with which workers can find the jobs that best match their skill sets.

Structural

Structural unemployment is the unemployment that arises when changes in technology or competition change the skills employers require for the available jobs. Structural unemployment can be more problematic for the economy. If the labor force does not have the needed skills, the economy cannot produce the level of goods and services demanded. Technological advances and competition from other countries can lead to a mismatch between the skills demanded by firms and skills provided by workers. Structural unemployment may last longer than frictional unemployment and slow economic growth. Structural unemployment can also arise from job rationing, in which the real wage rate is above the equilibrium rate that would equate all jobs with all workers seeking work. Job rationing can result from efficiency wages, which are higher wages that employers offer to encourage more effort, from minimum wage laws, which cause the supply of labor to exceed demand in some markets, and from union wages, which also result in an excess supply of workers.

Technology

Technological advances have made it easier for households to have two adults working. Goods that were previously unavailable in the house are now available for purchase by most homeowners. For example, microwave ovens and prepared foods make cooking easier. These technological advances lower the time needed for household chores, allowing more women to work outside the home.

Technological Knowledge

Technological knowledge is the productive know-how of society. This knowledge includes all the ways we know how to organize and use the other resources.

Many economic forces and perspectives have contributed to gender-related changes in the labor market:

Technology Social attitudes

Marginally Attached Workers

The definition of a marginally attached worker is any available and willing adult without a job that looked for work in the recent past but is not making any effort to find a job right now.

Seasonal

The number of people looking for work is influenced by the time of year. Seasonal unemployment arises because of seasonal weather patterns. For example, more construction workers are employed in the summer months because building projects slow down during the winter months.

Unemployment Benefits

Unemployment benefits influence the extent to which workers are searching for jobs. When the government offers benefits to the unemployed, it affects their incentive to look for work.