ECON 2301: CH. 20 Study Guide

Which of the following scenarios are examples of job separation (i.e., workers who quit or were laid off) as a result of creative destruction?

Example: - Indeed.com provides an Internet-based job service; as a result, newspaper job offerings shrink and newspapers lay off workers. - A company installs a new accounting system that does all the billing automatically, which subsequently shuts down the accounting department. - In 1800, over 90% of U.S. workers had jobs in agriculture; by 2017, less than 5% did. - The book retailer Borders laid off 19,000 employees when it went bankrupt in 2011. Not an Example: - In 2001, there was an economic downturn as a result of a reduction in the valuation of many tech stocks. As a result, companies laid off 1.7 million people. - A regulation is passed that mandates paying workers for 45 days of labor for every year they are with a firm if they are fired or laid off. The day before the legislation goes into effect, three million workers with more than ten years of tenure each are fired. - McDonalds starts selling a popular new product, the "Quadstack," which causes Burger King to lose customers. Burger King then lays off workers.

The unemployment rate includes marginally attached workers and underemployed workers.

False The unemployment rate counts only workers who have no job at all and are actively seeking work.

Match the job sectors to their workforce shares for the years 1800 to 2010. Y-Axis = Percentage of workforce X-Axis = Year Top pink section, orange middle section, and weird yellow on the bottom agriculture, services, industry

Top pink section: services Service-sector jobs have increased from less than 10% of U.S. jobs in 1800 to 70% in 2017. Orange mid-section: industry Industrial-sector jobs rose from less than 5% of U.S. jobs in 1800 to about 20% in 2017. Note that industrial-sector jobs made up a larger share of U.S. jobs in the early 1900s and mid-1900s than in recent years. Yellow bottom section: Agriculture Agriculture-sector jobs have fallen from more than 90% of U.S. jobs in 1800 to less than 5% in 2017. The economy has undergone a major shift in the last two centuries, from one in which most people worked in agriculture to one where most people work in service-related jobs.

Some amount of unemployment will always exist, even in a healthy economy.

True Frictional and structural unemployment are both signs of a dynamic, healthy economy adjusting to new job types. Cyclical unemployment is unemployment due to downturns in the economy, and is considered unhealthy.

When the managers of a grocery store install self-checkout lanes, they place greater value on efficiency than on jobs.

True Self-checkout lanes will reduce costs and create more efficiency, but some workers will be laid off as a result.

Based on recent statistics, which of the following individuals would have the lowest probability of being unemployed?

a 50-year-old white female White females aged 20 and older have the lowest unemployment among the groups mentioned.

For each curve below, apply the correct label. Y-Axis = Percentage of labor force X-Axis = Year

- Blue top line: unemployed plus discouraged and underemployed workers - Orange bottom line: officially unemployed The gap between the official unemployment rate and the broader measure that includes underemployed and discouraged workers grows when the economy enters a recession.

In January 2019, + labor force participation in the United States was 62.3%. + official unemployment was 4.1%. + the proportion of short-term unemployment (14 weeks or less) in that month on average was 68.9%. + moderately long-term unemployment (15-26 weeks) was 12.7%. + very long-term unemployment (27 weeks or longer) was 18.4%. Based on these statistics, what proportion of the labor force was unemployed very long term in January 2019, to the nearest tenth of a percent? Note: Make sure to round your answer to the nearest tenth of a percent.

0.8% The proportion of the labor force that was unemployed very long term can be found by multiplying the unemployment rate (4.1%) by the percentage of those who have been unemployed long term (18.4%). To determine the very long-term unemployment rate, you can convert the percentages back to decimals by dividing each by 100 (0.041 and 0.184), and then multiply them to get 0.007544. Finally, divide this by 100 to convert that number back to a percentage (0.7544%), then round it off to the closest tenth (0.8%). 2.8% represents the proportion of the labor force that was unemployed short term. You are calculating very long-term unemployment as a proportion of the labor force.

Match the following statements to the results these actions have had on the labor market participation rate of men or women. 1. decreases men's labor force participation rate 2. increases women's labor force participation rate 3. decreases women's labor force participation rate

1. + men increasingly likely to stay home to care for children + reduction in proportion of workforce for traditionally male-dominated manufacturing jobs + men staying in school longer + men living longer 2. + increase in availability of preschools + reduction in social barriers to women working + invention of labor-saving devices, such as vacuum cleaners and dishwashers + increase in proportion of workforce for traditional female-dominated jobs in education and health care 3. + increase in women caring for aging parents + women staying in school longer Men's labor force participation has been decreased by living longer, staying in school longer, caring for children, and the decrease in manufacturing jobs. Women's participation has been increased by home labor-saving devices, availability of preschools, reductions to social barriers to women working, and an increase in traditional women's jobs in education and health care; women's participation has decreased due to staying in school longer and caring for aging parents.

Put the following hypothetical events, illustrating frictional unemployment, in chronological order.

1. Burger chain A introduces a new product, the MegaBurger. 2. Customer demand for burger chain A's new burger is high. 3. Burger chain A hires more workers as a result of increased demand for its products. At the same time, burger chain B begins to lose market share to burger chain A. 4. Burger chain B lays off some of its workers. 5. Unemployed burger chain workers are hired by burger chain A. Frictional unemployment is typically temporary. It is due to the time lag between a worker's being laid off from one job and finding another one.

Click on the U.S. unemployment rate range in which the natural unemployment rate is located. Y-Axis: Unemployment rate (percent) X-Axis: Year

Click in space between 4 and 6 The U.S. unemployment rate spikes during recessions. Afterward, it drops back toward the natural rate of approximately 5%.

Match the level of unemployment with the condition of the overall economy. 1. Actual GDP is above potential GDP. 2. Actual GDP is below potential GDP. 3. Actual GDP is equal to potential GDP.

1. Unemployment is below the natural rate. [The economy would be producing beyond its full employment capacity.] 2. Unemployment is above the natural rate. [The economy would be in a recession.] 3. Actual GDP is equal to potential GDP. Cyclical unemployment equals zero. [The economy is at full employment.]

Match each scenario to the label that best represents the person's employment situation. Labels may be used more than once. 1. Keith is a captain in the U.S. Army. 2. Olivia can't find a job in her college major, so she's no longer looking for work. 3. Carla is a retired librarian who works part-time at a local bookstore. 4. Elisha has moved to California and is taking classes while trying to find a job. 5. Darnell has a part-time job at the post office while looking for a full-time position as an accountant.

1. not in the labor force Military personnel are not considered to be a part of the civilian labor force. 2. not in the labor force People who've given up looking for work are marginally attached workers. 3. employed People who are working part-time without seeking full-time employment are counted as having a job. 4. unemployed To be considered unemployed, a person must be actively seeking a job and unable to find one. 5. underemployed People who work part-time but would like a full-time job are not considered unemployed.

Match each form of unemployment with an example. Note that every item may not have a match. 1. An unemployed paper mill worker currently looking for work. The local paper mill shut down due to lack of demand for paper products in a digital age. 2. A retiree. After a successful career in real estate, she now lives off her retirement savings and Social Security. 3. An unemployed stockbroker who is willingly taking some months off before looking for a new job. 4. An unemployed banker seeking a job during a recession. The banker would be hired back once the economy began growing normally again. 5. An unemployed cashier looking for employment. A small clothing store shut down due to its customers buying clothes from a new big-box retailer.

1. structural unemployment 2. empty 3. empty 4. cyclical unemployment 5. frictional unemployment Frictional unemployment is a normal, ongoing phenomenon associated with the lag between a person losing one job and finding another one. Cyclical unemployment is associated with the ebb and flow of the economy's growth rate over time. Structural unemployment is due to major, permanent shifts in the way the economy works.

Fill in the blanks to complete the following sentence about labor force and unemployment, assuming country X has the following statistics: + total population 16 years old or older = 50,000,000 + full-time students = 4,200,000 + not employed and not currently searching for jobs = 6,000,000 + not employed but currently searching for jobs = 2,336,000 + currently employed = 29,664,000 Country X has a labor force of _____, a labor force participation rate of _____, and an unemployment rate of _____.

32,000,000, 64%, 7.3% Note that if those not employed and not currently searching for jobs were all considered to be marginally attached workers and were included in the unemployment rate calculation, then this would be the U-6 unemployment rate, which is the ratio of unemployed plus marginally attached workers to the labor force plus marginally attached workers, which would be 22%, not 7.3%.

A country has a noninstitutionalized population of 243 million people. Of that number, - 38 million are under the age of 16 - 70 million are full-time students and retirees - 8 million are unemployed workers - 31 million are employed part-time for economic reasons - 96 million are employed full-time What is the labor force participation rate? Round to the nearest whole percentage.

66% The labor force includes people who are employed and unemployed.

A country has a noninstitutionalized civilian adult population of 263 million. Of that number: + 85 million are students, homemakers, retirees, etc. + 11 million are marginally attached workers. + 122 million are employed full-time. + 30 million are employed part-time. + 15 million are out of work and actively looking for work. What is the official unemployment rate? Round to one decimal place.

9.0% Not everyone in the adult population is part of the labor force. In order to calculate the official unemployment rate, determine the size of the labor force, which is composed of employed and unemployed workers, and the number of the officially unemployed. The unemployment rate represents the ratio of unemployed workers to the labor force. The labor force is made up of part-time and full-time workers plus those who are unemployed (meaning they are out of work and actively looking for a job).

Based on the table below, what conclusions can you draw about unemployment in the United States? Chart: Duration of Unemployment in the United States, 2010 and 2019

Conclusion: + The year after the Great Recession, almost 40% of unemployed people spent more than 6 months looking for a job. The percentage of people unemployed for 27 weeks or more in 2010 was 39.8%. + The length of time people remained unemployed in 2010 was generally longer than it was in 2019. Long-term unemployment in 2019 was 31.1%, compared to 56.7% in 2010. Not a conclusion: + The Great Recession did not affect the length of time people remained unemployed. A lower percentage of people in 2019 were unemployed for more than 15 weeks. + The majority of people who were unemployed in 2019 were looking for work for an extended length of time. Almost 70% of unemployment in 2019 was still classified as short-term unemployment.

Which of the following can be causes of frictional unemployment?

Correct Answer(s): + government regulation Government regulation can increase the cost of hiring employees, resulting in companies not making as many job offers as they would if the regulation weren't in place. + lack of information An unemployed person may not know about an opening for a certain job that would be a perfect fit. + unemployment benefits While unemployment benefits generally have a stabilizing effect on the economy, they can also be an incentive for someone to remain unemployed rather than take a marginally rewarding job. Incorrect Answer(s): + recession Jobs lost during a recession may come back once the economy is growing normally again. This is cyclical unemployment. + industries shutting down due to long-term changes in consumer tastes A company shutting down due to long-term changes in consumer tastes will likely never re-form. Therefore, this type of job is lost due to a change in the structure of the economy. This is structural unemployment. Frictional unemployment is an ongoing phenomenon, not due to economic cycles or structural changes in the economy.

The labels below describe either cyclical, structural, or frictional unemployment. Drag each label to the correct area on the figure. Keep in mind that not all labels will be used.

Cyclical: - unemployment that occurs as a result of a recession - unemployment level that is lower than the natural rate under healthy economic conditions Structural: - unemployment as a result of seeking a new job in a shrinking industry - unemployment that occurs as a result of changes in the industrial makeup of the economy Frictional: - unemployment as a result of seeking a new job in a stable industry - unemployment between time of graduation and finding a first job in a stable industry When an economy operates at a level of production that is higher than its normal healthy rate, cyclical unemployment is said to be negative.

The broader measure of labor market problems, U-6, includes marginally attached and underemployed workers. The standard official unemployment rate is U-3. Determine whether the following scenarios affect only U-6 or both U-3 and U-6. I. John quits his job as a government worker and becomes an adjunct (part-time) professor. He would like to eventually become a full-time professor. II. Phil is looking for work as a machinist; a prospective employer told him he'd have a job for him in three months, so Phil hasn't been looking for work for the last month. III. Stalina is working part-time as a waitress, while her husband Vitaly works in construction when jobs are available. Stalina gets pregnant and needs a full-time job with medical insurance. IV. After graduating college and working as a teaching assistant, Priyanka gets a part-time job as a programmer and also works as a personal trainer and an Uber driver to make ends meet. V. When Bill was released from prison, he looked for work for a year, but no one would give him a chance.

I. only U-6 U-3 will not change, but U-6 goes up. II. both U-3 and U-6 U-3 falls because Phil is leaving the labor force; U-6 rises, as Phil becomes a "marginally attached worker." III. only U-6 Stalina's job situation has not changed, but she now wants to change her job from part-time to full-time in order to receive medical coverage, so U-6 rises. IV. only U-6 Priyanka still has a job, so U-3 is unaffected, but now she is working part-time for economic reasons, so U-6 rises. V .both U-3 and U-6 U-3 goes down because Bill has left the labor force; Bill has become a marginally attached worker, so U-6 rises.

Njal had been working as a chainsaw operator for the past 15 years when his company decided to upgrade its equipment from chainsaws to timber harvesters, which are large pieces of equipment that require a new set of skills. The company was unwilling to train existing workers on the new equipment, so Njal needed to find another source of income. Match the scenarios Njal goes through on his way from one job to the next with the relevant economic terms. Some answers will be used more than once. Some answers will be used more than once. I. When Njal's company upgrades its operations, it will no longer employ chainsaw operators like Njal. Njal is not trained to do what the company needs, so he is laid off. II. After looking for work for several months, Njal cannot find work for a chainsaw operator, so he stops looking for three months. III. Njal signs up for a six-month government program that will train him to be a computer-repair specialist. IV. After completing the training program, Njal looks for work as a computer-repair specialist, but no one will hire him since he is an older worker and has no experience. V. Njal takes a part-time job with a computer-repair service to gain experience until he can find a full-time job. VI. Njal starts his own computer-repair company, and eventually has enough work to hire an assistant.

I. structural unemployment II. not in the labor force III. not in the labor force IV. frictional unemployment V. employed part-time for economic reasons (counted as part of U-6 unemployment); part of the labor force VI. part of the labor force Structural unemployment occurs when the skills used in an industry become obsolete, and so people with those skills lose jobs. If someone stops looking for work for longer than a month, they are considered to be no longer part of the labor force. Someone who is in school is not part of the labor force. Someone who is looking for a job, for which he or she is qualified, in an industry in which there are jobs available is experiencing frictional unemployment. U-6 is an "alternative measure of labor underutilization"—it includes not only official unemployment (U-3), but also discouraged workers, as well as people who are working part-time (fewer than 35 hours a week) and who want to have a full-time job. Anyone who works more than one hour a week for pay, or even for no pay if they are working for their own family's company, is part of the labor force Anyone who works more than 35 hours a week is counted as full-time.

Which statement is not true of full-employment output (Y*)?

It is the economic output when unemployment is at zero. Unemployment is never zero and cannot stay near zero for very long.

Which of the following groups would not be counted as unemployed when calculating the unemployment rate?

Not Included: - employed workers who want to work more hours; These individuals are technically employed. Their non-optimal status of working too few hours is not reflected in the traditional unemployment rate. - recently laid-off workers who are not searching for jobs; Citizens not searching for jobs are not included in the labor force, and therefore are not considered unemployed. - a 15-year-old student searching for his first job; Children under the age of 16 are not included in the labor force, and therefore are not considered unemployed. - retired workers; Retirement removes a person from the labor force. Included: - recently laid-off workers who are searching for new jobs; Citizens searching for jobs are included in the labor force, and therefore are considered unemployed. "Unemployed" implies "not employed," but the reverse is not true. "Unemployed" is a more specific subgroup than those that are not employed or looking for more work.

Due to labor-market regulations that make it difficult for young workers to break into the labor force, Spain has the highest level of youth unemployment (age 15-24) in Europe. The youth unemployment rate peaked in 2013 at 55.7% and has since fallen, but as of 2018 it was still 33.4% (ILO estimates). Based on this information, select whether the following suggested measures would reduce or increase Spanish youth unemployment.

Reduce(s) Youth Unemployment: - lower the age at which students can enter dedicated skills-training programs - offer a government subsidy for companies that hire long-term unemployed youth - make it easier for companies to break fixed-term contracts to lay off workers - encourage students to stay in the education system longer Increase(s) Youth Unemployment: - enable youth to leave high school at a younger age - increase the number of jobs that are covered by fixed-term contracts - increase Social Security contributions by companies

Click the area on the graph below that represents when the United States had the highest level of cyclical unemployment. Y-Axis: Unemployment rate (percent) X-Axis: Years

Space located on 1980 The overall unemployment rate was about 10.8%; this would represent the largest amount of cyclical unemployment, which is unemployment caused by economic downturns or by expansions that reduce unemployment to below its natural rate.

Government policies are sometimes created to help reduce different types of unemployment. Drag each government program to the appropriate type of unemployment the program would reduce.

Structural Unemployment: + offering job training and educational programs + providing subsidies to encourage people to relocate Frictional Unemployment: + increasing the amount of severance pay employers must pay when they fire someone + decreasing the amount of paperwork employers must complete for newly hired workers Job training programs would help workers who need to develop new skills to find work in a different field. Relocation subsidies would encourage people to move to an area where businesses are hiring workers. Increasing the required amount of severance pay would reduce the number of people who are laid off. Fewer regulations on businesses would decrease the costs of hiring new workers.

Use the table to fill in the blanks to complete the sentence about race and unemployment. The U.S. unemployment rate of _____ adult workers is consistently higher than that of _____ adult workers, and the labor force participation rate is consistently higher for _____ adult workers than for _____ adult workers.

black, white, male, female The difference in unemployment rates between black and white workers is much larger for teenagers versus adults: roughly 21% versus 12%.

Marshall has recently lost his job and is currently receiving federal jobless benefits. Fill in the blanks to complete the following passage about Marshall. Marshall benefits by receiving income so that he can continue to _____ goods and services while searching for a new job, which benefits society because it decreases the likelihood of an economic _____. On the other hand, the benefits may also cause Marshall to become _____ incentivized to take a job and _____ the amount of time he spends unemployed.

consume, recession, less, increase Unemployment insurance is designed to reduce hardships when a person loses a job and helps to support the overall economy by allowing for continued consumption. It can also have the unintended consequence of reducing people's motivation to look for work and may actually extend the length of time someone is unemployed.

The unemployment rate in economy X when it is growing normally (its "natural rate of unemployment") is 5%. When economy X is in a recession, the unemployment rate is 8%. Fill in the blanks to complete the statement correctly. For economy X, the natural rate of unemployment is always 5%. This rate is not due to _____ factors. It applies _____.

cyclical, at all times The natural rate of unemployment is the typical rate of unemployment for an economy that is growing normally. This rate is a stable feature of the economy and does not depend on whether it is in a recession or not. It is the rate to which the economy returns when the recession passes.

The unemployment rate in economy X when it is growing normally (its "natural rate of unemployment") is 5%. When economy X is in a recession, the unemployment rate is 8%. Fill in the blanks to complete the statement about the unemployment rate. The _____ unemployment rate while economy X is _____ is 0%. The 5% normal unemployment rate is due to structural and _____ factors.

cyclical, growing normally, frictional Cyclical unemployment is unemployment that results from an unhealthy economy; it is present when an economy is in a recession and is zero when an economy is growing normally and has only natural unemployment.

Which of the following type(s) of unemployment are most associated with an economy that is experiencing dynamic growth and technological progress?

structural unemployment Structural unemployment is a result of the development of new products and technologies.

The rate of unemployment when the economy is not in recession, meaning it is producing full-potential GDP, is called _____ unemployment (_____). If the rate of unemployment is below this, the economy is experiencing _____ cyclical unemployment.

the natural rate of, u*, negative The "natural rate" of unemployment refers to a rate of growth that enables everyone who wants a job to find one, aside from those who cannot find work due to frictional or structural factors. By February 2019, the U.S. economy experienced an unemployment level below 4%, which is below the lowest estimate given for the natural rate, and so the U.S. economy was experiencing negative cyclical unemployment. The highest rate of unemployment in the aftermath of the Great Recession was 10%; if we say that the "natural rate" at the time was 4%, then the other 6% would have been cyclical unemployment.

Not all unemployment is _____. Sometimes unemployment is due to _____, which is the introduction of new _____ and technologies that leads to the shutdown of other industries and jobs, as some jobs become _____, causing structural unemployment.

unhealthy, creative destruction, products, obsolete The process of creative destruction leads to structural unemployment, which is caused by changes in the industrial makeup (structure) of the economy. Structural unemployment is often a sign of a healthy, growing economy.

Place the following groups in order of U.S. labor force participation rate as of January 2019, from highest to lowest.

white male teenagers, white female teenagers, black female teenagers, black male teenagers The labor force participation rate of white male teenagers, as of January 2019, was 37.2%. The labor force participation rate of white female teenagers, as of January 2019, was 37.1%, which is almost exactly the same as white male teenagers. The labor force participation rate of black female teenagers, as of January 2019, was 35.8%, which is higher than that of black male teenagers. The labor force participation rate of black male teenagers, as of January 2019, was 32.2%. Unemployment statistics tell us the proportion of a designated segment of the labor force who is actively looking for work—it suggests a need for an income. The labor force participation rate tells us the proportion of people in the labor force who currently have a job—that is, the number of people who have an income.