ECON 201 1st Edition Lecture 29Outline of Last Lecture I. ProductivityII. Investmenta. Definition of investmentb. Definition of foreign direct investmentc. Definition of foreign portfolio investmentIII. EducationIV. Health and NutritionV. Property Rights and Political Stabilitya. Definition of property rightsVI. Free TradeVII. Research and DevelopmentVIII. Population Growtha. Stretching Natural Resourcesb. Diluting Capital Stockc. Population Technology ProgressOutline of Current Lecture I. Labor Force Statisticsa. Definition of labor force statisticsb. Definition of employedc. Definition of unemployedd. Definition of not in labor forcee. Definition of labor forceII. Unemployment Rate and Labor Force Participation Ratea. Definition of unemployment rateb. Definition of labor force participation rateIII. Labor Force Statistics Example ProblemIV. Natural Rate of Unemploymenta. Definition of natural rate of unemployment b. Definition of frictional/search employmentc. Definition of structural unemployment V. Unemployment Insurancea. Definition of unemployment insuranceThese 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.Current LectureI. Labor Force StatisticsLabor force statistics are statistics produced by the Bureau of Labor Statistics (BLS) in the UnitedStates Department of Labor. It is based on a regular survey of the “adult population” (16 years or older) of 60,000 households. The total population does not include minors, the military, institutionalized persons, or incarcerated persons. It divides the population into three groups: employed, unemployed, and not in labor force. The employed category includes paid employees, self-employed, and unpaid workers in a family business. The unemployed category includes people not working who have looked for work during the previous four weeks (actively seeking work). The not in labor force category constitutes everyone else, including retirees, stay-at-home parents, and college students. The labor force consists of all potential workers, working (employed), and not working. II.Unemployment Rate and Labor Force Participation RateThe unemployment rate is the percent of unemployed in the labor force and is represented by the equation below.U– rate = ¿ of UnemployedLabor Force×100The labor force participation rate is the percent of the adult population in the labor force and isrepresented by the equation below. Labor Force Participation Rate = Labor ForceAdult Population× 100We have these different rates because not all unemployment is the same, so we categorize unemployment by certain characteristics, such as duration. It is a basic truth that there is alwayssome unemployment in an economy.III.Labor Force Statistics Example ProblemUse the statistics in the table below to calculate the total labor force, unemployment rate, adult population, and labor force participation rate. Labor Force Statistics of Adult PopulationEmployed 139.7 millionUnemployed 13.7 millionNot in Work Force 85.7 millionTotal Labor Force = employed + unemployed = 139.7 + 13.7 = 153.4 millionUnemployment Rate =¿ of UnemployedLabor Force×100 = 13.7153.4×100 = 8.9%Adult Population = 139.7 + 13.7 + 85.7 = 239.1 million (table says “adult population”)Labor Force Participation Rate = Labor ForceAdult Population× 100 = 153.4239.1×100 = 64.2%IV. Natural Rate of UnemploymentThe natural rate of unemployment is the normal rate of unemployment around which the actual unemployment rate fluctuates. It is the long run “average” of unemployment and is madeup of frictional and structural unemployment. Frictional unemployment (also known as search unemployment) is the unemployment when workers spend time searching for the jobs that best suit their skills or tastes. It is a short-term state for most workers. Structural unemployment is when the skills of the workers are not those valued by the market; this occurswhen there are fewer jobs than workers. Note that there may be nothing wrong with the economy at this time, just simply a shortage of jobs. This is usually long-term for workers, and can be the result of “sticky wages” (when the market does not adjust). It occurs when wage (the $5 orange line) is above the equilibrium, as shown on the employment graph below. V. Unemployment InsuranceUnemployment insurance is a government program that provides some income to workers when unemployed. The benefits are that it reduces uncertainty about income and gives the workers more search time to find a better job match, which leads to greater productivity. The cost is that it increases frictional
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