Ch. 8 Unemployment

Why do some people who don't have jobs, quit looking for a job?

that is often due to discouragement due to their inability to find suitable employment.

Economists consider the economy to be at full employment when

the actual unemployment rate is equal to the natural unemployment rate.

What is Full Employment?

the condition in which virtually all who are able and willing to work are employed. UR is = to Natural UR

What causes changes in unemployment over the Long Run?

the natural rate of unemployment.

What is the Labor Force Participation Rate?

the percentage of adults in an economy who are either employed or who are unemployed and looking for a job.

Efficiency Wage Theory

the theory that the productivity of workers, either individually or as a group, will increase if they are paid more.

What is Cyclical Unemployment?

the variation in unemployment that the economy causes moving from expansion to recession or from recession to expansion (the business cycle).

Why do middle-aged workers tend to have lower unemployment?

they feel the responsibility of needing to have a job more heavily.

Why do younger workers tend to have higher employment?

they move in and out of jobs more than middle-aged workers.

What is Out of the Labor Force?

this is a third group of people who are not working and not looking for work.

insider-outsider model

those already working for the firm are "insiders" who know the procedures; the other workers are "outsiders" who are recent or prospective hires

What is Underemployed?

those who are trained and skilled for one type or level of work but are working in a lower paying job or one that does not utilize their skills.

What is the Labor Force?

# of employed + the # of unemployed (without a job but looking for work).

What is the calculation for percentage in the Labor Force?

# of people in the labor force/total adult working population X 100.

College degree holders unemployment rate - _____ Some college - _____ Highschool grads - _____ No high school diploma - _____

2.5% 3.8% 5.3% 7.7%

T/F Changes in technology and new workers joining the workforce have contributed to an overall upward trend in the unemployment rate.

F

T/F The end of the 20th century saw some of the highest rates of unemployment in US history.

F

T/F Unemployment generally remains stable and static over time.

F

What is Recessing?

Recession firms perceive that the economy is slowing down or entering a recession, they will wish to hire a lower quantity of labor at any given wage - labor demand curve shifts left.

T/F It is very likely that an unemployment rate of 0% will never be observed.

T

T/F the behavior of the unemployment rate is related to the business cycle.

T

Who reports the official US unemployment rate?

U.S. Bureau of Labor Statistics

Are unemployment rates for African Americans higher?

Yes; pattern of discrimination that has constrained blacks' labor market opportunities.

Relative Wage Coordination Argument

across-the-board wage cuts are hard for an economy to implement, and workers fight against them

What things are there based on the US BLS (bureau of labor statistics) and CPS (current population survey)?

age gender race education

Implicit Contract?

an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong

Additional education often offers what?

better connections to the labor market and higher demand.

What is Expanding?

businesses expanding then at any given wage they will desire to hire a greater quantity of labor - labor demand shift right.

What is an example of being underemployed?

considering an individual w/a college degree in finance who is working as a sales clerk.

What is employed?

currently working for pay.

What causes changes in unemployment over the short run?

cyclical unemployment wages being sticky downward

Reasons why wages might be sticky downward - involves economic laws and institutions

for low-skilled workers receiving minimum wage, it is illegal to reduce their wages. for union workers operating under a multiyear contract with a company, wage cuts might violate the contract and create a labor dispute or a strike.

Natural Rate of Unemployment =

frictional + structural

What are the types of natural rate of unemployment?

frictional unemployment structural unemployment

Natural Unemployment Rate is related to two other important concepts:

full employment potential real GDP

When the economy is below full employment, the unemployment rate is

greater than the natural unemployment rate and real GDP is less than potential.

Younger workers tend to have what?

higher employment.

Those with less education typically suffer what?

higher unemployment

On the supply side of the labor market, public policies to assist the unemployed can affect

how eager people are to find work. example - worker who loses a job is guaranteed a generous package of unemployment insurance etc, the the opportunity cost of unemployment is lower and that worker will be less eager to seek a new job.

What are the types of reason as to why people do not have jobs.

retirement looking after children (stay at home Moms) taking a voluntary break before a new job not interested in having a job those who do not have a job and have quit looking

Adverse Selection of Wage Cuts Argument

if employers reduce wages for all workers, the best ones will leave

What are some reasons why wages might be sticky downwards?

implicit contract efficiency wage theory insider-outsider model adverse selection of wage cuts argument relative wage coordination argument

Structural Unemployment

individuals who have no jobs b/c they lack skills valued by the labor market, either b/c demand has shifted away from the skills they do have, or b/c they never learned any skills. high school dropouts

What are Discouraged Workers?

individuals who would like to work but have given up looking for a job, and they are no longer counted in the unemployed.

What is the Unemployment Rate?

its not the percentage of the total adult population without jobs, but rather the percentage of adults who are in the labor force but who do not have jobs.

When the economy is above full employment, the the unemployment rate is

less than the natural unemployment rate and real GDP is greater than potential.

Middle-aged workers tend to have what?

lower unemployment.

How frequently is the survey that determines unemployment released?

monthly

Actual Unemployment Rate

natural + cyclical

Public Policy can also have a powerful effect on the

natural rate of unemployment

How is the Unemployment Rate calculated?

number of unemployed/labor force x 100

What is Unemployed?

out of work and actively looking for a job.

When the economy is at full employment

real GDP is equal to potential real GDP.

Employed - 5905 Unemployed - 492 Not in the labor force - 571 What is the total labor force? What is the labor force participation rate? What is the unemployment rate? suppose 266 of the 492 unemployed people have been unemployed for so long that they stop looking for work (discouraged). New labor force? New labor force participation rate? New unemployment rate?

total labor force = 5905+492 = 6397 labor force participation rate = 6397/6968 x 100 = 91.81 unemployment rate = 492/6397 x 100 = 7.69 new labor force = 5905+492-266 x100 = 6131 new labor force participation rate = 6131/571+266+226+5905 x 100 = 87.99 new unemployment rate = 492-266/6131 x 100 =3.69

What are two examples of Hidden Unemployment?

underemployed discouraged workers

The elderly have extremely low rates of what?

unemployment, b/c those who do not have jobs often exit the labor force by retiring, and thus are not counted in the unemployment statistics.

What is Potential real GDP?

when the economy is at full employment, real GDP is = to potential real GDP.

On the demand side of the labor market, government rules social institutions, and the presence of unions can affect the

willingness of firms to hire. example - if a government makes it hard for businesses to start up or to expand, by wrapping new businesses in bureaucratic red tape, then businesses will become more discouraged about hiring.

Frictional Unemployent

workers voluntarily change jobs, temporary layoffs, people between jobs