ECON 205 1st Edition Lecture 9 Outline of Last Lecture How do standards of living and growth differ around the world Productivity is a key determinant of living standards What determines productivity and its growth How does public policy affect standard of living Outline of Current Lecture How is unemployment measured Factors of unemployment Efficiency wages Current Lecture Labor Force Statistics Produced by Bureau of Labor Statistics BLS Divides population into 3 groups o Employed o Unemployed people who aren t working but have been looking for work for the past 4 weeks o Not in labor force Labor Force is comprised of the employed and unemployed Unemployment Rate U rate 100 x number of unemployed labor force Labor Force participation rate 100 x labor force adult population An adult in this case is anyone age 16 and over BLS data reveals different employment experiences for various groups o Gets super specific i e unemployment rates of white females ages 16 20 Data and statistics don t adjust for illegal activity What does U rate really measure Excludes the discouraged worker o Worker who has given up looking for a job but would still like one Doesn t distinguish between full time and part time work or people working part time because full time jobs are unavailable Some people misreport their work status in the BLS survey U rate still useful barometer of labor market and economy Duration of unemployment Most people not unemployed for long o 1 3 of unemployed are only unemployed for less than 5 weeks o 2 3 of unemployed are unemployed for less than 14 weeks o only 20 of unemployed are in that state over 6 months Yet most observed unemployment is long term o For example if a study looks at 4 unemployed people and 3 of those people are always unemployed it seems like 75 of unemployment is long term In reality the study looks at more than 4 people because one person is consistently changing In 6 months 3 people are always unemployed but 7 different people represent the 1 that is unemployed for in the short term Long term unemployment then changes to 30 because study actually looks at 10 people Cyclical unemployment vs natural rate Cyclical fluctuates dramatically while natural rate is steadier Natural rate normal rate of unemployment around which the actual unemployment rate fluctuates Cyclical unemployment the deviation of unemployment from its natural rate o Associated with business cycles Explaining natural rate Frictional unemployment o When workers spend time searching for the jobs that best suit their skills and tastes o Short term for most people Structural unemployment o When there are fewer jobs than workers o Usually long term Job Search Job search process of matching workers with jobs Sectoral shifts changes in composition of demand across industries or regions of the country o Displace workers who must search for new jobs that are more appropriate Government employment agencies provide information about job vacancies to speed up the matching of workers with jobs Public training programs train workers for certain jobs Unemployment Insurance UI Government program that partially protects workers incomes when they become unemployed UI increases frictional unemployment o Decreases urgency and motivation to find a new job Will have benefits for 28 weeks under Obama s policies Decreases uncertainty over income Gives people more time to find jobs that fit their skills o Increases productivity Minimum Wage Laws Minimum wage exceed the equilibrium wage for least skilled or experienced workers o Small part of labor force so it doesn t explain all of unemployment Unions Worker associations that bargain with employers over wages benefits and working conditions Exert market power to negotiate higher wages Union workers increase wage which decreases labor demand and creates unemployment Insiders workers who remain employed are in the union Outsiders workers who lose their jobs and were not in the union Some outsiders go to non unionized labor markets o Increase labor supply and decrease wages in those markets Critics of unions they are cartels o Increase wages above the equilibrium and create unemployment and or depresses wages in non union labor markets Advocates of unions counter market power of large firms make firms more responsive to worker needs o Even threat of a union can affect wages Efficiency Wages Firms voluntarily pay above equilibrium Worker health in less developed countries firms pay more so workers eat healthier and are more productive Worker turnover hiring and training new workers costs more than paying experienced worker more Worker quality offering higher wages attracts higher quality workers Worker effort increased wages makes workers work harder