Unemployment Measuring 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 speci c efforts to nd 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 Labor force employed unemployed Population labor force not in labor force Unemployment rate unemployed employed unemployed Labor force participation rate labor force total population Discouraged worker effect the decline in the measured unemployment rate that results when people who want to work but cannot nd jobs grow discouraged and stop looking thus dropping out of the ranks of the unemployed and the labor force Types of Unemployment Frictional portion of unemployment due to normal turnover in labor market used to denote short run job skill matching problems People who have just entered labor force or are switching jobs Structural portion of unemployment due to changes in structure of economy that result in signi cant loss of jobs in certain industries Coal miners unemployed after economy stops mining coal Natural rate of employment 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 above frictional plus structural unemployment In ation The 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 customer CPI market basket shows how a typical consumer divides his or her money among various goods and services Most of a consumer s money goes toward housing transportation and food and beverages CPI only covers consumer goods and services whereas GDP de ator covers all goods and services in economy CPI includes prices of imported goods which GDP de ator doesn t Producer prices indexes PPIs measures of prices that producers receive from products at all stages in production process Indexes calculated separately for all various stages in process Finished goods intermediate materials crude materials Some detect price increases early in production process The Costs of In ation In ation May Change the Distribution of Income Whether you gain or lose during period of in ation depends on whether your income rises faster or slower than the prices of the things you buy If income is xed and prices rise your ability to purchase goods and services falls proportionately If in ation is anticipated and contracts are made a d agreements written with the anticipated value of in ation in mind there need not be any effects of in ation on income distribution Real interest rate difference between interest rate on a loan and in ation rate More uncertainty and risk when in ation is unanticipated which may prevent people from signing long run contracts that would otherwise be bene cial for both parties Administrative Costs and Inef ciencies Interest rates rise with anticipated in ation and when they are high the opportunity cost of holding cash outside of banks is high people hold less cash and need to stop at bank more often Long Run Growth Output growth growth rate of output of the entire economy Per capita output growth growth rate of output per person in economy Productivity growth the growth rate of output per worker Output and Productivity Growth How can output increase Add workers Add machines Increase length of workweek Quality of workers increase Quality of machines increase Upward trend in labor productivity since 1952 and fairly sizable short run uctuations around the trend
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