ECON 103 Chapter 15
In what kind of economy do structural changes exist? Why do people lose their job in this kind of economy?
- An economy in which old industries are replaced by new industries (i.e. between low-teach and high-tech companies) - People lose their job when this happens b/c they don't have the right skills or are unwilling to learn new skills necessary for high-tech industries
What is an example of seasonal unemployment?
- If you are a ski instructor, you will only have a job during the winter - During the Christmas season, since more people are buying things than usual, companies hire more people for the season and then let them go after the season is over
What does it mean for people to be in "institution"? Are they included as part of the labor force? What are these people called?
- People in the military, mental institution, nursing homoe, religious cloisters, etc. - No, they are not part of the labor orce and are removed from the labor force
Who are discouraged workers?
- People who have been actively looking for a job, but they became discouraged and gave up after not being able to get a job after looking for a while
Who are discouraged workers?
- Workers moving in and out of the labor force - Workers who have been experiencing more lasting unemployment and have beeworking for a while ot get a job but have not been able to get a job due to lack of skills currently desired in the job market - These people are discouraged from looking for jobs
Who are the kind of people who undergo structural unemployment?
- Workers who lack job qualifications => they may not have the right skills that the job market wants so they are unemployed since no one wants to hire them - People unwilling to move to a region with jobs for which they have the approporiate skills (geography) => you don't want to or can't move to an area where your skills can be applied, so you are unemployed b/c the area you're in doesn't need your skills
What does it mean to be "temporarily laid off"?
- You are considered unemployed b/c companies close their doors for an extended period of time (due to companies doing inventories or refurbishing) - During this period of time, no-one is working therefore you arre considered as unemployed but you are promised to return to your same job within a period of 6 months before yoou start again
Discouraged people (are/are not)capable of working and (do/do not) want to work
- are - do
What are the causes of structural unemployment?
- lack of worker qualifications - minimum wage - unionization
Higher LFPR means that (more/less) people participate in the labor force and have (higher/lower) number of inactive people.
- more - lower
What kind of people experience frictional unemployment?
- people between jobs - people entering the labor-market for the first time - people re-entering the lab market after a long absence
What does it mean to "not be in the labor force"?
- people who are neither employed nor unemployed, such as full-time students, homemakers, and retirees
What does it mean to be unemployed?
- people who are not employed, were available for work, and had tried to find employment during the previous 4 weeks (compared to the reference week) - people waiting to be recalled to a job from which they had been laid off
What does it mean to be employed?
- people who are paid employees, self-employed, and/or unpaid workers in a family member's business - full-time or part-time employees - people who are temporarily absent from work (such as injury, maternity, vacation, etc.)
Is frictional unemployment short-term or long-term?
- short-term b/c they will get a job soon and therefore their unemployment period is short
What is the cause of frictional unemployment?
- the imperfect information on job searching. It takes time to match a potential employee with appropriate work qualifications with a potential employer, since they don't know each other yet
Into what 3 categories does does the BLS place each adult from the survey in?
1. Employed 2. Unemployed 3. Not in the Labor Force
What 2 categories is the civilian population divided into?
1. Employed 2. unemployed
What are the 3 reasons why the unemployment rate is underestimated or overestimated?
1. Exclusion of Discouraged Workers 2. Part-Time Workers 3. Those Seeking Actively for a Job
What are the 4 different types of unemployment?
1. Frictional 2. Structural 3. Cyclical 4. Seasonal
What are the 4 explanations for the economy's natural rate of unemployment?
1. Job search 2. Minimum-wage laws 3. Unions 4. Efficiency wages
What is the cause for a decrease in structural unemployment?
A more educated/skilled labor force => the more your labor force is skilled, the less likely you'll have structural unemployment
How do you calculate the adult population?
Adult population = labor force + inactive
Why does excluding discouraged workers from the unemployment rate underestimate it?
B/c even though discouraged workers are not actively seeking, they still would rather work if given a job/chance. By excluding discouraged workers, unemployment is excluding people who want to work but are discouraged. Being jobless is not their choice
Why are people undergoing frictional unemployment unemployed?
B/c even though they have the right skills for the jobs that are available, it takes time to find the right job => you are NOT unemployed b/c you don't have the desired skills
Why does the label of "seeking actively for a job" cause problems with measuring unemployment?
B/c some workers/people ireport their work status on the BLS survey. They lie about "seeking actively for a job", b/c they are either not looking, or they are not looking AND working under the table. This under the table income is not reported.
Why does the unemployment rate exclude discouraged workers?
B/c to be unemployed means that you are actively looking for a job, but discouraged workers are not looking for a job because they gave up
Why is the NRU always positive?
B/c you will always have some unemployment in an economy
What does a decreasing change in frictional unemployment come from?
Better job searching techniques => the easier it is to find new jobs and employers that fir you, the faster you'll find a jb, therefore making you employed and decreasing the unemployment rate
What is cyclical unemployment the difference of?
Cyclical unemployment is the difference between the U rate and the natural rate
When do people undergo cyclical unemployment?
Cyclical unemployment is when you are unemployed due to the cycle of the economy - If the economy is crashing, cyclical unemployment increases b/c companies are unable to sell products so they lay off workers - If the economy is rising, cyclical unemployment decreases b/c more peope are being hired
Under the definition of employed, part-time and full-time workers are counted (differently/equally)
Equally
T/F: Unemployment goes away on its own in the long run
F: Unemployment does not go away on its own even in the long run
When a country keeps its workers as fully employed as possible, it achieves a (higher/lower) level of GDP than it would if it left many of its workers idle
Higher
What does an increasing change in frictional unemployment come from?
Higher unemployment benefits => if unemployment benefits are good, people will take more time to find an ideal job b/c they are supported. Therefore, people are unemployed for a longer period of time, increasing the unemployment rate
How do you calculate the labor force (LF)?
LF = employed + unemployed
How do you calculate the labor force participation rate (LFPR)?
LFPR = (labor force / adult population) x 100%
What does the Natural Rate of Unemployment (NRU) equal?
NRU = frictional + structural
What is the opposite of people in institution?
Non-institutional civilian population => AKA the adult population
T/F: If you have a job but it hasn't started yet, you are considered unemployed until you start the new job
T
Who is in charge of the measuring unemployment?
The BLS (bureau of Labor Statistics), which is part of the Department of Labor
Who does the survey apply to?
The adult population => people 16 years or older
What is the Natural Rate of Unemployment?
The amount of unemployment that the economy normally experiences
Is the following statement True or False? Why?: At the beginning of an economic recovery where more workers are newly employed, we often observe an increase in the unemployment rate
True; Since more jobs are being created, not only are people who were already unemployed looking for a job, but other people outside of the labor force, like discouraged workers, are entering the labor force for jobs. The number of people re-entering the labor force becomes greater than the number of newly created jobs. Since the labor force is increasing, and now more people are declaring they are looking for a job actively but cannot find one, the unmployment rate rises.
How do you calculate the unemployment rate (U)?
U = (# of unemployed / labor force) x 100
What is the equation for Unemployment that is not seasonally adjusted?
U = Frictional + Structural + Cyclical + Seasonal
Does the exclusion of discouraged workers underestimate or overestimate the unemployment rate?
Underestimate
What is an important aspect of unemployment?
You have to be actively seeking a job. If you were not actively looking for job, you are not considered unemployed, you are considered as "not in the labor force"
What is the Labor-Force Participation Rate?
The percentage of the total adult population that is in the labor force AKA the fraction of the population that has chosen to participate in the labor market Labor-Force Participation Rate = (Labor Force / Adult Population) x 100
What is the duration of cyclical unemployment?
the duration of cyclical unemployment varies with the business cycle
What is the unemployment rate?
the percentage of the labor force that is unemployed Unemployment Rate = (Number of Unemployed / Labor Force) x 100 - the BLS computes unemployment rates for the entire adult population and for specific demographic groups defined by race, gender, etc.
What is the labor force?
the sum of the employed and uemployed Labor Force = Number of Employed + Number of Unemployed
Is it possible for the following types of unemployment to equal 0? 1. Frictional 2. Structured 3. Cyclical
1. no => people are always job-shopping and short-term unemployment exists 2. No => there will always be people who have the right skills for the jobs available 3. yes
What are discouraged workers labeled as when they stop looking for jobs?
Inactive
When the demand of many goods and services are ailing and people are losing their jobs, cyclical unemployment will (increase/decrease)
Increase
Does the misuse of the "actively seeking a job" label overestimate or underestimate unemployment?
It overestimates it b/c these people are not actively seeking a job or are working and earning money under the table, thereforeare raising the number of declared unemployed people
How long does structural unemployment last?
Medium to long-term unemployment
Do part-time workers underestimate or overestimate the unemployment rate?
Part-time workers underestimate the unemployment rate b/c unemployment doesn'tcount he people who work part-time but really want a full time job. They are not employed at the level they want to be
What is frictional unemployment?
The unemployment that results from the process of matching workers and jobs => AKA the unemployment that results from people job-shopping/looking for a new job
What is cyclical unemployment?
The year-to-year fluctuations in unmployment around its natural rate - It is closely associated with the short-run fluctuations in economic activity
How does the BLS measure unemployment?
They send a survey called the "Current Population Survey" to around 60,000 regular households
What is seasonal unemployment?
Unemployment that is the result of chaning seasons (like weather, tourism, holidays, etc.)
What is structural unemployment?
Unemployment that is the result of mismatch between job seekers and employers
What is cyclical unemployment?
Unemployment that results from a general downturn in business activity => the economy falls into a recession, resulting in a lower demand for goods and services, therefore causing firms to lay off workers or hire fewer workers
What is the equation for Unemployment that is seasonally adjusted?
Usa = (U - Seasonal) = Frictional + Structural + Cyclical Usa = NRU + cyclical
When is having a part-time job considered underemployment?
When a worker would rather full-time than part-time but works part-time because that is the only job they can find
When can you have negative cyclical unemployment?
When many peopleare doing overtime or working more hours than they signed up for => all of this overtime means youare overutilizing your workforce
