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GSU ECON 2105 - Chapter 8 in class

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Slide 1Unemployment RateUnemployment RateUnemployment RateUnemployment RateUnemploymentUnemploymentUnemploymentUnemploymentUnemploymentUnemploymentUnemploymentUnemployment RateSlide 19Unemployment RateUnemployment RateSlide 23The Nature of UnemploymentThe Nature of UnemploymentSlide 30Structural UnemploymentStructural UnemploymentStructural UnemploymentThe Natural Rate of UnemploymentThe Natural Rate of UnemploymentNatural Unemployment around the OECDGLOBAL COMPARISON: Natural Unemployment Around the OECDFOR INQUIRING MINDSUnemployment and InflationChapter 8(23)THIRD EDITIONECONOMICSandMACROECONOMICSPaul Krugman | Robin WellsUnemployment Rate•Employment is the number of people currently employed in the economy, either full time or part time.•Unemployment is the number of people who are actively looking for work but aren’t currently employed.•The labor force is equal to the sum of employment and unemployment.•The labor force participation rate is the percentage of the population aged 16 or older that is in the labor force.The unemployment rate is the percentage of the total number of people in the labor force who are unemployed.Unemployment RateUnemployment RateUnemployment Rate•Discouraged workers are nonworking people who are capable of working but have given up looking for a job because of the state of the job market.•Marginally attached workers would like to be employed and have looked for a job in the recent past but are not currently looking for work.•Underemployment is the number of people who work part time because they cannot find full-time jobs.www.bls.gov/bls/glossary/htmUnemployment•Employment 160, Unemployment 40, Discouraged workers 10•Unemployment rate = (40/200) * 100 = 20%•Including discouraged workers…“real” unemployment rate = (50/200)*100=25%http://www.npr.org/blogs/money/2009/03/the_real_unemployment_number.htmlUnemploymentPopulation 10Three retireesTwo part time workersTwo discouraged workersOne unemployed workerTwo full time worker1. Labor Force2. Unemployment Rate3. Labor Force Participation rateUnemploymentPopulation 10Three retireesTwo part time workersTwo discouraged workersOne unemployed workerTwo full time worker1. Labor Force = 1 + 2 + 2 = 52. Unemployment Rate= 100 × 1/5 = 20%3. Labor Force Participation rate = 100 × 5/10 = 50%Unemployment•Population 10•Three retirees•Two discouraged workers (they used to look for jobs, but due to recession, they have given up looking for a job.)•Two part time workers (they used to have a full time job, but due to recession, they had to choose a part time job, involuntary part timers.)•One unemployed worker•Two full time workerUnemployment•Population 10•Three retirees•Two discouraged workers (they used to look for jobs, but due to recession, they have given up looking for a job.)•Two part time workers (they used to have a full time job, but due to recession, they had to choose a part time job, involuntary part timers.)•One unemployed worker•Two full time workerIf Discouraged workers are considered as Unemployed, what’d be unemployment rate?Unemployment•Population 10•Three retirees•Two discouraged workers (they used to look for jobs, but due to recession, they have given up looking for a job.)•Two part time workers (they used to have a full time job, but due to recession, they had to choose a part time job, involuntary part timers.)•One unemployed worker•Two full time workerIf Discouraged workers are considered as Unemployed, what’d be unemployment rate?Labor force =7Unemployment rate = 100 × 3/7 = 42.85%Unemployment•Population 10•Three retirees•Two discouraged workers (they used to look for jobs, but due to recession, they have given up looking for a job.)•Two part time workers (they used to have a full time job, but due to recession, they had to choose a part time job, involuntary part timers.)•One unemployed worker•Two full time workerIf Discouraged workers and Part time workers are considered as Unemployed, what’d be unemployment rate?Labor force =7Unemployment rate = 100 × 5/7 = 71.42%Unemployment RateUnemployment RateUnemployment RateUnemployment and Recessions, 1978-2011Unemployment RateThe Nature of Unemployment•Workers who spend time looking for employment are engaged in job search.•Frictional unemployment is unemployment due to the time workers spend in job search.•Structural unemployment is unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage.•Natural unemployment = Frictional unemployment + Structural unemploymentThe Nature of UnemploymentStructural UnemploymentThe Effect of a Minimum Wage on the Labor Market Quantity of LaborWWage RateWFE QD QE QSStructuralunemploymentMinimumwageStructural Unemployment•Minimum wage—a government-mandated floor on the price of labor. In the United States, the national minimum wage in 2010 was $8.25 an hour.•Unions—by bargaining for all a firm’s workers collectively (collective bargaining), unions can often win higher wages from employers than the market would have otherwise provided when workers bargained individually.Structural Unemployment•Efficiency wages—wages that employers set above the equilibrium wage rate as an incentive for better performance.•Side effects of government policies—public policies designed to help workers who lose their jobs; these policies can lead to structural unemployment as an unintended side effect.The Natural Rate of Unemployment•The natural rate of unemployment is the normal unemployment rate around which the actual unemployment rate fluctuates. It is the unemployment rate that arises from the effects of frictional plus structural unemployment.•Cyclical unemployment is a deviation in the actual rate of unemployment from the natural rate.The Natural Rate of Unemployment•Natural unemployment = Frictional unemployment + Structural unemployment•Actual unemployment = Natural unemployment + Cyclical unemploymentNatural Unemployment around the OECDGLOBAL COMPARISON: Natural Unemployment Around the OECDFOR INQUIRING MINDSAn Unemployment Lockdown?•Most analysts believe that the natural rate of unemployment in the United States has fallen substantially since 1980; the Congressional Budget Office estimate has fallen from 6.2% to 4.8%. •One factor is that many of those who would otherwise be counted as unemployed may be behind


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