Zara Mahmood September 12 13 EC102 Lecture 3 Unemployment BLS Monthly Employment Survey As of August U S unemployment rate was 7 3 Employed Unemployed month worked even part time in the last week Did not work in the last week but did look for job over the last o Together constitutes the labor force o Labor Force economy The sum of employed and unemployed workers in the Not in Labor Force did not work in the last week or actively look for job in last month o Discouraged workers People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them Unemployment Rate The percentage of the labor force that is unemployed Unemployment rate unemployed in labor force x 100 the percentage of the working age population Labor force participation rate in the labor force Labor force participation rate labor force working age population x 100 Types of Unemployment Frictionally Short term unemployment that arises from the process of matching workers with job people between jobs Zara Mahmood September 12 13 EC102 Normal type of unemployment not worrisome Structurally Unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs In between jobs because they need to update their skills in order to find a new job Learn new accounting software familiarize with robotic equipment Normal type of unemployment not worrisome o Find a better job in more dynamic economy Both Frictional and Structural natural rate of unemployment Factors Which Influence the Natural Rate What determines how much frictional and structural unemployment there will be Government policies Training programs decrease natural rate gets people reemployed faster o Trade adjustment assistance program Minimum wage laws Forces wage to remain above equilibrium o Quantity labor supplied quantity labor demanded Unemployment compensation More incentive to stay unemployed o Reduces opportunity cost of being out of work o Increases frictional unemployment o U S equals about half the average wage for 6 months Canada Eur is 70 80 of wage for a year Labor Market Policies Legal restrictions on hours vacations retirement Esp firing especially restrictive in Europe Labor Unions Bargain with employers over wages benefits working conditions Important in airlines autos steel and telecom o Can keep wages above equilibrium in unionized industries o Surplus of labor is unemployment o 9 of private workforce is unionized Efficiency Wages Above equilibrium increase local productivity Efficiency Wage A higher than market wage that a firm pays to increase worker productivity o Reduce worker turnover o Reduce absenteeism o Increase productivity o Attract higher quality job applicants Can increase unemployment more people want to work Identifying Unemployment Zara Mahmood September 12 13 EC102 Natural rate of unemployment Consists of frictional and structural unemployment Normal rate of unemployment Cyclical unemployment worrisome Cyclical Unemployment Unemployment caused by a business cycle recession Deviation of unemployment from its natural state Currently 2 3 of natural 7 3 How is unemployment measured Unemployment rate o Percentage of labor force that is unemployed o Number of unemployment labor force x 100 Labor force participation rate o Percentage of adult population that is in the labor force o Labor force adult population x 100 Introduction to Economic Growth Growth Is the change in real GDP over time Growth Rate the annual percentage change in real GDP Y Real GDPlater year Real GDPearlier year GDPearlier year What we really care about is the change in real per capita GDP Small differences in economic growth rates result in big differences in living standards The Rule of 70 Enables you to calculate the years it takes some growing quantity to double Years to double 70 Growth Rate o Growth rate 2 o Years to double 70 2 35 years Per Capita GDP Per Capita GDP GDP Population Growth rate of real per capita GDP Y Y Pop Growth rate of Y Growth rate of pop Y pop The Significance of Growth Economic growth is the ultimate determinant of such variables as Nutrition Literacy Infant mortality Life Expectancy