ECON 2133 1st Edition Lecture 2 Outline of Last Lecture I Federal Government Uses of Funds A Goods Services B Entitlements C Interest on National Debt II Federal Government Sources of Funds A Personal Income Taxes B Social Security Taxes C Corporate Profit Taxes III State and Local Government Uses of Funds A Education B Public Welfare C Highways IV State and Local Government Sources of Funds A Sales Taxes B Income Taxes C Grants from DC Federal Government D Property Taxes V Types of Taxes A Regressive B Progressive C Flat Proportional VI VII Implicit Contracts Between Local State and Federal Govt A State Sales Tax vs Value Added Tax Federal Sales Tax GDP revisited These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Outline of Current Lecture I II Unemployment A Unemployment Levels at Various Points in Time B How to Measure Unemployment Rate C How Employment Rate Changes 1 Labor Force definition 2 Unemployment Changes 3 factors D Types of Unemployment 1 Frictional Search Unemployment 2 Seasonal Unemployment 3 Cyclical 4 Structural 5 Our Bifurcated middle class Inflation A How to measure B Types of Inflation 1 Accelerating inflation 2 Disinflation C Inflation Graph from 1970s to NOW with Business Cycle Current Lecture I Unemployment A Unemployment Levels at Various Points in Time How much does recession verse depression resemble each other B C March of 1933 Unemployment level at 25 Great Recession was 10 4 unemployment rate though Currently at 5 6 unemployment Counter cyclic variable unemployment rate down when economy up high when economy low How to measure unemployment rate Percentage of the labor force out of work Opaque and misleading How employment rate changes Depends on who you count Labor force 16 and older nonmilitary non institutionalized who are working or actively seeking work Revolving door where nobody stays unemployed for far too long same trend is apparent with being below the poverty line Unemployment changes 1 Net Job Gains Unemployment goes down or Losses Unemployment goes up 2 Part Time work To be granted full time work it s only 30 hours a week So must work below that Unemployment rate goes down because not a full time equivalency measure so part time workers are technically not counted 3 Labor Force Participation When people choose whether or not to participate in working then that effects Unemployment Rate Drop outs from high school college Unemployment Rate goes down because there are less people actively seeking work Number of jobless people in Labor Force falls so therefore Unemployment rate also goes down Since 2007 around 11 million people who have left the labor force Half of these people are from baby boomer generation from retiring 10 000 ppl a day Unemployment rate going down exclusively because of people going and getting jobs Right now you can see 4 5 of Labor Force left if these people were thrown back and the UR would be 8 and not 5 4 currently If unemployment rate were to go up then those who exited thought that their probability of finding employment went up they entered to actively seek work National Bureau of Econ Research Monthly Turning Points that we have to memorize for first exam D Types of Unemployment 1 Frictional aka Search Unemployment Lack of synchronicity Joblessness due to employeremployee informational mismatch Period of time where people are unemployed just waiting for hiring decision Internet expedited decisions and job finding process 2 decrease in UR due to Frictional Unemployment 2 Seasonal Joblessness due to 23 degree tilt of the Earth s Axis 3 Cyclical Joblessness due to Business Cycle fluctuations More amplitude gives us more cyclical unemployment Unemployment Rate has come down because we are in economic expansion first time in last decade the economy growth rate has grown significantly Most likely growing more rapid in future too 4 Structural Joblessness due to people not having marketable skills currently in demand Most long term and the worst kind EX Like in England when only producing college graduates in liberal arts shortage of engineers and nurses Took a while to get back on track EX Textile industry in Carolina abandoned Steel industry in Chicago Can t get same textile steel job because industry is dying and therefore so are your skills Dying economy verse growing economy adapt or die to growing economy Getting rid of structural unemployment requires retraining and acquisition of new skills in demand E Our middle class bifurcated Bifurcate split in two what our labor force is high skilled ppl making big money and low skill ppl aren t No more mid level jobs management Currently called labor market compression Can also be caused by international resource flows 2 of Labor Force is made up of farmers and still have too many of them Technology causes job loss because robots replacing people and their jobs EX Plant wanted to works to be permitted to use the forward button on email if in the Union Print email secretary re type email then send it to the destination Because if hit forward button then that secretary would be out of a job When renegotiating contract had to permit the use of forward button email EX When telephones first came out warning for ruining of telegraph operator jobs II Inflation percentage growth rate in the overall general price level A rate of change For our existence it s only been growing 1 2 year Small increment on inflation is fine but you do not want deflation not worth the backlash when prices then go up More and more deflation piles up and that s what made the depression occur Deflation a percentage shrinkage rate in the overall general price level A How to measure inflation Difficult because we have thousands of goods and hard to track everything Consumer Price Index measure inflation by tracking change in the cost of living for the average household www bls gov dept of labor B Types of inflation 1 Accelerating inflation price level increasing at increasing rate 2 Disinflation price level is increasing at decreasing rate C Inflation Graph from 1970s to NOW with Business Cycle