chapter 30: Unemployment and Labor Force Participation
employment protection laws have the following effects:
*Create valuable insurance for workers with full-time jobs. *Make labor markets less flexible and dynamic. *Increase the duration of unemployment. *Increase unemployment rates among young, minority, or otherwise "riskier" workers
Lower growth is usually accompanied with higher unemployment because:
1) when GDP is falling, firms often lay off workers, which increases unemployment. 2)Higher unemployment means that fewer workers are producing goods and services.
factors that can increase structural unemployment:
1)Large, long-lasting shocks that require the economy to restructure. ex: oil shocks and shifting from manufacturing to services 2)Labor regulations ex: unemployment benefits and minimum wages
Theories of economists on the cause of cyclical unemployment:
1)business cycles are mostly a response to real shocks that require a reallocation of labor across industries. 2)the "Keynesian" persuasion, think that cyclical unemployment is caused by deficiencies in aggregate demand
What determines the labor force participation rate?
1. Lifecycle effects 2. demographics Incentives
In many European countries, however, ____% or more of workers are governed by a union contract.
80
policies that can reduce structural unemployment:
Active labor market policies: -Job retraining -Work tests -Job-search assistance -Early employment bonuses
Who were the Luddites?
British handicraft workers who attacked factories and destroyed machinery they believed were putting them out of work
the difference between cyclical employment versus frictional and structural:
Cyclical employment can increase or decrease dramatically over a matter of months.
Faster Growth in Real GDP ____ Unemployment
Decreases
Hiring and Firing Costs ____ Long-Term Unemployment
Increase.
The Minimum Wage and Unions ____ Unemployment
Increase.
unions increase unemployment by the amount ____.
Qs − Qd.
one of the causes of frictional unemployment:
Scarcity of information
Why do unemployment rates in the United States and Europe behave so differently?
Structural unemployment has been a more serious problem in Europe than in the United States because of labor regulations. -All of these regulations are more generous and wide-ranging in Europe than in the United States, and that helps explain why structural unemployment is a more serious problem in Europe than in the United States.
practical example of cyclical unemployment being caused by deficiencies in aggregate demand:
The wages demanded by workers are out of synch with the level of prices, so workers are too expensive to hire from the point of view of firms.
Unemployment rate formula
Unemployed/(Unemployed+Employed)×100 =(Unemployed/Labor force)×100
what happens to the financial health of the US when baby boomers start retiring?
When those boomers start retiring en masse, then that will be a tsunami of spending that could swamp our ship of state if we don't get serious.
what is labor force participation rate?
[(unemployed + employed) ÷ (unemployed + employed + not in the labor force)] × 100 =Labor force/(Adult population(×100
what does "persistent, long-term unemployment" mean?
a substantial fraction of the unemployed have been unemployed for more than one year and that this problem has lasted for a long time.
How is the Unemployment Rate Defined?
adult, non institutionalized citizens, without a job but looking for work
unemployed
adults who do not have a job but who are looking for work
affect of minimum wage in France compared to the US?
affect more workers and create more unemployment in France than in the United States.
Changing demographics such as what can all change the labor force participation rate?
aging baby boomers, technology like the pill, cultural attitudes toward women and work, and government policy such as taxes and pension benefits
Unions
an association of workers that bargains collectively with employers over wages, benefits, and working conditions. -more powerful in Europe than in the United States
when does creative destruction occur?
at the level of the firm and the industry.
what happens if structural unemployment lasts long enough?
brings significant human costs in addition to the loss of economic output.
main exception to the at-will doctrine?
doctrine can be changed by contract.
what caused the Insider riot Central Paris, 2006?
employment protection laws
practical example of frictional unemployment
finding a price that the seller is willing to accept and the buyer is willing to pay that is difficult.
natural rate of unemployment
first add the number of frictionally unemployed(FU) to the number or people who are structurally unemployed (SU), then divide this number by the total labor force.
what do unions demand?
higher wages by using their power to strike and to prevent the firm from hiring substitute labor.
what does the "rigidity of employment index," calculate?
hiring and firing costs, as well as how easy it is for firms to adjust hours of work (e.g., whether there are restrictions on night or weekend hours).
second problem unemployed workers face:
hiring managers may regard unemployment as a sign of laziness or other problems.
Effect of pushing older workers into retirement on the younger workers?
imposes significant costs on younger workers who must pay higher taxes because older workers are not contributing to GDP.
underemployment rate
includes part-time workers who would rather have a full-time position and also people who would like to work but have given up looking for a job.
discouraged workers
jobless individuals who have given up looking for work but who would still like to find a job
What causes structural unemployment?
large, economy-wide shocks that occur relatively quickly.
Unemployment benefits also last much ____ in Europe than in the United States
longer
what does falling labor force participation mean?
ower tax receipts
what is the "normal" retirement age determined by?
partly a matter of culture and convention but it is also partly determined by economic incentives, especially taxes―a subject to which we now turn.
baby boomers
people born during the high-birth-rate years of 1946-1964
Structural unemployment
persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs
active labor market policies
policies that focus on getting unemployed workers back to work, such as job-search assistance, job-retraining programs, and work tests
what did the French government do it result of the riots?
proposed to change labor law so that for workers under the age of 26, employment would be at-will for the first two years.
Labor market policies make it easier for workers to what?
retrain and move to employment have had greater success in keeping long-term unemployment low.
frictional unemployment
short-term unemployment caused by the ordinary difficulties of matching employee to employer
creative destruction
the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
formula of net figure
the difference between hires and separations
the choice to work depends on what?
the difference between what work pays and what leisure pays.
What were the elite French youth upset over?
the idea that they could be fired at will which they felt infringed on what they considered to be their rights
Throughout Western Europe, instead of contracts, public law and collective bargaining govern what things?
the length of the workweek, overtime pay, paid leave, temporary employment, notice periods, severance pay, and more.
first problem unemployed workers face:
the longer a worker remains out of the labor force, the more his or her skills atrophy.
labor force participation rate
the percentage of adults in the labor force
unemployment rate
the percentage of the labor force without a job:
How the pill Increased female Labor Force Participation:
the pill lowered the costs of earning a professional degree by giving women greater certainty about the consequences of sex. -pill gave woman greater control of WHEN children are born -allowed woman to remain in school and pursue longer careers
employment at-will doctrine
the policy that an employee may quit and an employer may fire an employee at any time and for any reason; the most basic U.S. employment law despite many exceptions to it
natural unemployment rate
the rate of structural plus frictional unemployment
what cultural factors played a role in rising female labor force participation?
the rise of feminism and the growing acceptance of equality
the unemployment rate is a good summary indicator of what?
the state of the labor market
median wage
the wage such that one-half of all workers earn wages below that amount and one-half of all workers earn wages above that amount
Since the time of the Luddites, technological change has dramatically increased what?
the wages and standard of living of the average worker.
why is unemployment rate higher in younger individuals?
they tend to be less productive
outcome of unemployment benefits
unemployment benefits reduce the incentive for workers to search for and take new jobs
cyclical unemployment
unemployment correlated with the business cycle
what do unemployment benefits include?
unemployment insurance, but also other benefits such as housing assistance that may be available in some countries
why are we interested in the unemployment rate?
unemployment, especially long-term unemployment, can be financially and psychologically devastating.
why is unemployment so high in Europe compared to the US?
workers in Europe can afford to remain unemployed for longer periods than workers in the United States.
What type of discouraged worker does the Bureau of Labor Statistics (BLS) keep statistics on?
workers who want and are available for work, and who have looked for a job sometime in the last year but not in the last month because they believe that no jobs were available for them.