USC ECON 205 - Unemployment

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ECON 205 1st Edition Lecture 9Outline 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 wagesCurrent LectureLabor Force Statistics- Produced by Bureau of Labor Statistics (BLS)- Divides population into 3 groupso Employedo Unemployed- people who aren’t working, but have been looking for work for the past 4 weekso 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 groupso Gets super specific (i.e. unemployment rates of white females ages 16-20)- Data and statistics don’t adjust for illegal activityWhat does U-rate really measure?- Excludes the discouraged workero 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 economyDuration of unemployment- Most people not unemployed for longo 1/3 of unemployed are only unemployed for less than 5 weekso 2/3 of unemployed are unemployed for less than 14 weekso only 20% of unemployed are in that state over 6 months- Yet, most observed unemployment is long termo 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 peopleCyclical 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 rateo Associated with business cyclesExplaining natural rate- Frictional unemploymento When workers spend time searching for the jobs that best suit their skills and tasteso Short term for most people- Structural unemploymento When there are fewer jobs than workerso Usually long termJob Search- Job search- process of matching workers with jobs- Sectoral shifts- changes in composition of demand across industries or regions of the countryo Displace workers who must search for new jobs that are more appropriate- Government employment agencies provide information about job vacancies to speed upthe matching of workers with jobs- Public training programs train workers for certain jobsUnemployment Insurance (UI)- Government program that partially protects workers’ incomes when they become unemployed- UI increases frictional unemploymento 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 skillso Increases productivityMinimum Wage Laws- Minimum wage exceed the equilibrium wage for least skilled or experienced workerso Small part of labor force, so it doesn’t explain all of unemploymentUnions- 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 marketso Increase labor supply and decrease wages in those markets- Critics of unions: they are cartelso 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 needso Even threat of a union can affect wagesEfficiency 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

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