ECON 0110 1st Edition Lecture 16SECTION 13:UNEMPLOYMENTEMPLOYMENT ACT OF 1946:It is the responsibility of the Federal government to seek “maximum employment”CIVILIAN NONINSTITUTIONAL POPULATION (CNP)DEFINITION: Monthly Labor ReviewAll persons age 16 and over who are not inmates of penal or mental institutions,sanitariums, or homes for the aged, infirm or needyThis is the potential labor forceIt includes students, old people and retireesTO GET UNEMPLOYMENT DATA FROM ECONOMIC REPORT OF THE PRESIDENTThe 2014 Economic Report of the President has 26 data tables: See Table B-11http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ERP&browsePath=2014&isCollapsed=false&leafLevelBrowse=false&isDocumentResults=true&ycord=0These 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.EMPLOYED (E)1. Worked for pay any time during the week which includes the 12th day of themonth2. Worked unpaid for 15 hours or more in a family-operated business3. Temporarily absent due to illness, vacation, etc.A person with 2 jobs is counted only once.UNEMPLOYED (U)1. Did not work during the survey week2. Available for work3. Had looked for jobs within the preceding 4 weeksor4. Did not look for work because they were laid ofPersons who do not have a job, would like one, and are actively seeking a jobNOT IN THE LABOR FORCE (N)Everyone in the civilian noninstitutional population who is not classified as employed orunemployedMainly, students, housewives & retireesCIVILIAN LABOR FORCE (LF)= Employed + Unemployed= all individuals who have a job or are actively seeking workLF = E + ULF ignores people in the militaryUNEMPLOYMENT RATE= Number unemployed as a percentage of the labor force= (Unemployed / Labor Force) x 100%= U / LF x 100%EMPLOYMENT RATE= Number employed as a percentage of the labor force= (Number employed / labor force) x 100%= E / LF x 100%LABOR FORCE PARTICIPATION RATE= Labor force as a percentage of the civilian noninstitutional population= (Labor force / civilian noninstitutional population) x 100%= (LF / CNP) x 100%EXAMPLE:Population in 2010 = 308.7 million1. Under 16, military, institutionalized 71.4 million2. Employed 139.4 million3. Unemployed 15.3 million4. Not in labor force 82.6 million____Total 308.7 millionCivilian noninstitutional population= employed + unemployed + not in labor force= 139.4 million + 15.3 million + 82.6 million = 237.3 millionLabor force = employed + unemployed = 139.4 million + 15.3 million = 154.7 millionUnemployment rate = (unemployed / labor force) x 100%= 15.3 million / 154.7 million x 100% = .099 x 100% = 9.9%Labor force participation rate= labor force/civilian noninstitutional population x 100%= (154.7 million / 237.3 million) x 100%= .651 x 100% = 65.1%SOME COSTS OF UNEMPLOYMENT1. Individual economic and psychological hardship2. Loss of output at the national level (lower GDP)3. Lower standard of living4. Lower aggregate income5. Lower tax revenue for government6. Increased government spending for welfare and unemployment compensation7. Increased budget deficit8. Increased national debt9. Increased government borrowing10. Increased interest payments on national debt11. Increase in crime rates, alcoholism, suicide rates, domestic violence and socialunrestPROBLEMS INVOLVED IN MEASURING THE UNEMPLOYMENT RATE1. DISCOURAGED WORKERSPeople who want to work but are unable to find a job and quit looking2. UNDEREMPLOYED WORKERSPeople working in jobs far beneath their skill level; people wo are overqualified for their jobs.People working part time who want to work full time3. UNDERGROUND ECONOMYPortion of the economy where workers are paid in cash, do not report income and do not paytaxes4. A GROWING ECONOMY SOMETIMES CAUSES DISCOURAGED WORKERS TO ENTER THELABOR FORCEMost experts agree that the official U.S. unemployment figures tend to UNDERESTIMATE thetrue level of unemployment.UNEMPLOYMENT COMPENSATION AFFECTS THE UNEMPLOYMENT RATEPeople can get unemployment compensation for 26 weeks.Encourages people to remain unemployedOther things being equal, an increase in unemployment benefits will cause the unemploymentrate to increaseTYPES OF UNEMPLOYMENT1. Frictional unemployment2. Seasonal unemployment3. Structural unemployment4. Cyclical unemploymentFRICTIONAL UNEMPLOYMENTThe portion of unemployment due to the normal workings of the labor marketDenotes short run problems in matching people with skills to available jobsEXAMPLES OF FRICTIONAL UNEMPLOYMENTNew entrantsRe-entrantsPeople switching jobsPeople who have been laid of from seasonal employmentJobs are available and workers have the necessary skills to perform the jobsPROBLEM: prospective employers and employees have not matched upEmployers and job seekers need time to find each otherCURE: Provide better information about job availability to speed up job searchSEASONAL UNEMPLOYMENTCaused by seasonal changes in the demand for certain kinds of labor(Construction workers, highway repair workers, house painters, landscape workers, farmworkers, ski resorts, beaches)HOLIDAYS(sales workers at Christmas or at the start of school)CURE? NoneSTRUCTURAL UNEMPLOYMENTUnemployment caused by changes in the structure of the economySometimes caused by changes in tastes, technology, or competitionOften leads to a significant loss of jobs in certain industriesEXAMPLE: Steel industry in PennsylvaniaOften leads to long term unemploymentWorkers may lack transferable skillsWorkers may not live where the jobs areEXAMPLES OF DECLINES IN EMPLOYMENTBECAUSE OF VARIOUS STRUCTURAL CHANGESSecretaries vs. computersBank tellers vs. ATMsAgricultural workers vs. farm equipmentTobacco farmers vs. health adviceNewspaper workers vs. InternetSOME CAUSES OF STRUCTURAL UNEMPLOYMENTChanges in demand for goods Shifts in technologyWorldwide competitionSOME PROPOSED CURES:Workers may need job retrainingWorkers may need to move to new locationsWorkers may need to accept lower wagesCYCLICAL UNEMPLOYMENTThe increase in unemployment that occurs during a recessionUnemployment caused by a decline in aggregate demand for goods and servicesRelated to the business cyclePOLICIES TO CURE CYCLICAL UNEMPLOYMENTStimulate the economy via fiscal or monetary policyFISCAL POLICIES1. Cut taxes2. Increase government spendingMONETARY POLICIES3. Increase the money supply4. Lower interest ratesFULL EMPLOYMENTTHE