ECO102 Principles of Macroeconomics Problem Session 4 5 6 by Research Assistant Serkan De irmenci 19 04 2012 03 05 2012 10 05 2012 Today Mankiw 2008 Principles of Economics Chapter 28 Unemployment Questions for Review QfR 1 7 page 636 Problem and Applications P A 1 10 page 636 637 Chapter 28 QfR 1 page 636 What are the three categories into which the Bureau of Labor Statistics divides everyone How does it compute the labor force the unemployment rate and the labor force participation rate ANSWER The BLS categorizes each adult 16 years of age and older as either employed unemployed or not in the labor force The labor force consists of the sum of the employed and the unemployed The unemployment rate is the percentage of the labor force that is unemployed The labor force participation rate is the percentage of the total adult population that is in the labor force Chapter 28 QfR 2 page 636 Is unemployment typically short term or long term Explain ANSWER Unemployment is typically short term Most people who become unemployed are able to find new jobs fairly quickly But some unemployment is attributable to the relatively few workers who are jobless for long periods of time Chapter 28 QfR 3 page 636 Why is frictional unemployment inevitable How might the government reduce the amount of frictional unemployment ANSWER Frictional unemployment is inevitable because the economy is always changing Some firms are shrinking while others are expanding Some regions are experiencing faster growth than other regions Transitions of workers between firms and between regions are accompanied by temporary unemployment The government could help to reduce the amount of frictional unemployment through public policies that provide information about job vacancies in order to match workers and jobs more quickly and through public training programs that help ease the transition of workers from declining to expanding industries and help disadvantaged groups escape poverty Chapter 28 QfR 4 page 636 Are minimum wage laws a better explanation for structural unemployment among teenagers or among college graduates Why ANSWER Minimum wage laws are a better explanation for unemployment among teenagers than among college graduates Teenagers have fewer job related skills than college graduates do so their wages are low enough to be affected by the minimum wage College graduates wages generally exceed the minimum wage Chapter 28 QfR 5 page 636 How do unions affect the natural rate of unemployment ANSWER Unions may affect the natural rate of unemployment via the effect on insiders and outsiders Because unions raise the wage above the equilibrium level the quantity of labor demanded declines while the quantity supplied of labor rises so there is unemployment Insiders are those who keep their jobs Outsiders workers who become unemployed have two choices either get a job in a firm that is not unionized or remain unemployed and wait for a job to open up in the union sector As a result the natural rate of unemployment is higher than it would be without unions Chapter 28 QfR 6 page 636 What claims do advocates of unions make to argue that unions are good for the economy ANSWER Advocates of unions claim that unions are good for the economy because they are an antidote to the market power of the firms that hire workers and they are important for helping firms respond efficiently to workers concerns Chapter 28 QfR 7 page 636 Explain four ways in which a firm might increase its profits by raising the wages it pays ANSWER Four reasons why a firm s profits might increase when it raises wages are 1 better paid workers are healthier and more productive 2 worker turnover is reduced 3 the firm can attract higher quality workers and 4 worker effort is increased Chapter 28 P A 1 page 636 As shown in Figure 3 the overall labor force participation rate of men declined between 1970 and 2000 At the same time the labor force participation rate of women increased sharply This overall decline reflects different patterns for different age groups however as shown in the following tables All Men 1970 2000 80 75 All Women 1970 2000 43 60 Men 16 24 69 69 Men 25 54 96 92 Men 55 and older 56 40 Women 16 24 51 63 Women 25 54 50 77 Women 55 and older 25 26 Chapter 28 P A 1 page 636 cont Given this information what factor do you think played the key role in the decline in male labor force participation over this period What do you think explains the increase in labor force participation for women ANSWER Men age 55 and over experienced the greatest decline in labor force participation This was because of increased Social Security benefits and retirement income encouraging retirement at an earlier age The rise in female labor force participation may be the result of changes in social attitudes labor saving devices in the home such as dishwashers and microwave ovens and lower fertility rates Chapter 28 P A 2 page 636 The Bureau of Labor Statistics announced that in February 2008 of all adult Americans 145 993 000 were employed 7 381 000 were unemployed and 79 436 000 were not in the labor force Use this information to calculate a the adult population b the labor force c the labor force participation rate d the unemployment rate ANSWER The labor force consists of the number of employed 145 993 000 plus the number of unemployed 7 381 000 which equals 153 374 000 To find the labor force participation rate we need to know the size of the adult population Adding the labor force 153 374 000 to the number of people not in the labor force 79 436 000 gives the adult population of 232 810 000 The laborforce participation rate is the labor force 153 374 000 divided by the adult population 232 810 000 times 100 which equals 66 The unemployment rate is the number of unemployed 7 381 000 divided by the labor force 153 374 000 times 100 which equals 4 8 Chapter 28 P A 3 page 636 Go to the website of the Turkish Statistical Institute www turkstat gov tr What is the national unemployment rate right now Find the unemployment rate for the demographic group that best fits a description of you for example based on age sex and race Is it higher or lower than the national average Why do you think this is so ANSWER Many answers are possible Chapter 28 P A 4 page 636 Between 2004 and 2007 total U S employment increased by 6 8 million workers but the number of unemployed workers declined by only 1 1 million How are these numbers consistent with each other Why might one expect a
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