Chapter 7 Unemployment Inflation and Long Run Growth Unemployment Employed any person 16 years or older who works for pay either for someone else or in his or her own business for 1 or more hours per week who works without pay for 15 or more hours per week in a family enterprise or who has a job but has been temporarily absent with or without pay Unemployed a person 16 years or older who is not working is available for work and has made specific efforts to find work during the previous 4 weeks Not in the labor force a person who is not looking for work because he or she does not want a job or has given up looking full time students retirees individuals in institutions those staying home to take care of kids discouraged job seekers Labor force the number of ppl employed plus the number of unemployed o Labor force employed unemployed Population labor force not in labor force Unemployment rate the ratio of the number of ppl unemployed to the total number of ppl in the labor force o Unemployment rate unemployed employed unemployed Labor force participation rate the ratio of the labor force to the total population 16 years old or older o Labor force participation rate labor force population To get a good idea about the unemployment picture we should look at unemployment rates across groups of ppl regions and industries o Demographic groups in 1982 recession the unemployment rate for AAs was almost twice of that for Whites men fared worse than women teenagers fared worse than adults o Geographical location different areas have different industries o Discouraged worker effect the decline in the measured unemployment rate that results when ppl who want to work but cannot find jobs grow discouraged and stop looking thus dropping out of the ranks of the unemployed and the labor force During recessionary periods the average duration of unemployment rises Employment Act of 1946 declared that it was the continuing policy and responsibility of the federal government to use all practicable means to promote maximum employment production and purchasing power 1978 Full Employment and Balanced Growth Act AKA Humphrey Hawkins Act formally established a specific unemployment rate target of 4 Some unemployment is inevitable Frictional unemployment the portion of unemployment that is due to the normal turnover in the labor market used to denote short run job skill matching problems Structural unemployment the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries Natural rate of unemployment the unemployment rate that occurs as a normal part of the functioning of the economy sometimes taken as the sum of frictional unemployment rate and structural unemployment rate Cyclical unemployment unemployment that is above frictional plus structural unemployment seems like much of the unemployment in 2009 was this Inflation Prices of goods continually change as supply and demand shift Inflation increase in the overall price level Deflation decrease in the overall price level Consumer price index CPI a price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the market basket purchased monthly by the typical urban consumer most widely followed price index fixed weight index tends to overestimate the rate of inflation CPI covers only consumer goods and services and prices of imported goods whereas GDP deflator covers all goods and services produced in the economy and not prices of imported goods Producer price indexes PPIs measures of prices that producers receive for products at all stages in the production process aka wholesale price indexes o Indexes are calculated separately for various stages in the production process finished goods intermediate materials crude materials o Advantage detect price increases early in the production process Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of the things you buy Real interest rate the difference between the interest rate on a loan and the inflation rate There is more uncertainty and risk when inflation is unanticipated Interest rates tend to rise with anticipated inflation when interest rates are high the opportunity costs of holding cash outside of banks is high so ppl hold less cash and need to stop at the bank more often Long Run Growth economy Output growth the growth rate of the output of the entire economy Per capita output growth the growth rate of output per person in the Productivity growth the growth rate of output per worker Not everyone in the country works so output per worker is larger than output per person US annual growth rate of 3 3 Increase output by adding more workers more machines increase the length of the workweek the quality of the workers to increase education of workers increase and now they have more skills or the quality of machines increases Labor productivity output per worker hour aka productivity
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