Chapter 24 11 13 2013 Intro to macroeconomics cant observe macroeconomics because it doesn t exist The only way we can get an idea of this is through aggregation Macroeconomics in recessions unemployment rates go up chart of unemployment is all macroeconomics Economic growth Economic growth an economy is growing if at one point in time is producing more stuff than it was at a previous time or as time passes Those of us who are working we are all doing the same thing produce goods and services which generates income We have an economy that is growing which means more jobs which mean more income Measure Percent change in the REAL GDP Measure of goods and services produced Major issue Fluctuations over time o Long run Changes in productivity Calendar time decades centuries Growth is an exponential concept Ex we have an economy that is growing at an annual rate at 2 5 We have 1000 There is a huge different over a long time rather than just 1 year Main reason for differences in growth changes in productivity So if you can get productivity to grow slightly for a long time the outcome will be enormous o Short run Business cycle Yearly month to month Economy is growing at a fast rate expansion or slow rate shrinking recessions Business cycle example business profit as economy expanses the profits go up but if the economy is going though a recession the profits go down o Recession depression expansion Recession economy is shrinking Expansion economy is growing o Example productivity procyclical Procyclical grows with the business cycle Unemployment The basics Definition 7 2 unemployment rate What does that mean o Unemployment rate who are we talking about Survey household o Labor force participation rate LFPR What is counted in Measurement BLS household survey READ THE ARTICLE ON this MOODLE o Employed o Unemployed The unemployment rate is calculated by the households 60 000 eligible households Sample size is about 120 000 Pretty accurate even though its not a lot of the population o Not in labor force o Labor force a b o Working age population a b c The reason that this is just a subset is the problem we have with 6 month old children They don t contribute anything to the economy consuming and unconsuming If they worked they wouldn t get much done because there not productive So we will exclude them from this percentage Paper on moodle The household survey Sample is selected to reflect the entire civilian nom institutional population Each person 16 and old is classified as employed unemployed or not in the labor force People are classified as employed if they did any work at all as paid employees during the reference worked in their own business profession or on their own farm Worked without pay at least 15 hours in a family business or farm If they were temporarily absent from their jobs because of illness bad weather vacation labor management disputes or personal week reasons Chapter 24 11 13 2013 Unemployment The Basics Measurement BLS Household survey o Employed or o Unemployed and No employment during the reference week AND available for work at that time when your making your effort and been offered a job and been able to start immediately then you are available AND they made specific efforts to find employment sometime during the week period ending with the reference week The person laid off from a job and expecting recall need not be looking for a work to be counted as unemployed NONE OF THESE GET YOU UNEMPLOYMENT o Not in Labor Force Not looking for a job etc o Labor Force a b unemployed employed o Working age population a b c o Unemployment rate unemployed labor force Percentage of about half of the US population o Labor force participation rate Labor force Working age population 100 Lowest level in 35 years issue if it falls in the future If fewer aren t in the labor force it says how we are or are not going to grow in the future Examples True problems of unemployment o On the micro level if I m unemployed I m trying to find paid employment and I m not able to do so This effects my ability to purchase goods and services Unemployment is a problem o Macro Why is unemployment a problem It s a problem because its inefficient We have people that are willing and able to work but cant find employment We have resources that can produce goods and services but we aren t doing that A person not working on making pizza which means a family doesn t get that pizza A house that isn t built today is a house that isn t sheltering a family This effects economy ability to grow in the future High of unemployment can affect economy in the growth rates in the future How bad is the problem Does that 7 2 capture the problem There is 6 definitions of measures ALTERNATIVE measures of labor underutilization Were talking about people It is not fully being used How do we measure it U 3 is the one usually used Underemployed works part time job and wants to work full time U 6 would see you as unemployed No matter which U were are talking about the trend is decreasing which is good because its improving Relationship with the business cycle short term fluctuations of economic growth o Countercyclical with a lag when the economy is on the upside the unemployment goes down and vise versa There is a lag when the economy bottoms out in a recession and starts moving up the unemployment rates don t start falling they go up for a little bit before they fall 2007 2009 went through a recession and the unemployment rate went up and then up to 17 months later the unemployment rates finally are going down very slowly Policy is where were going in the future Unemployment Four types Frictional o Definition The good type of unemployment Desirable In its nature it is short term and individual in nature individual people and business Frictional unemployed if we have a person who is unemployed who is out looking for a job and can start NOW and there is a job opening available and there is a skills in geographic match Why are they unemployed We don t know every job opening that exist It takes time to search for a job Sometimes called search for employment o Short term desirable Eventually the info will get out there Short term in normal times when economy is doing well the mean number of weeks to find a match is about 15 weeks The medium is around 10 weeks The mean in September was 36 9 weeks Desirable you don t want to take the first job that comes along We want people to take their time to find the best job same with