Econ 102 1st Edition Lecture 4 Outline of Last Lecture I. Review from Last Lecture II. Chapter 5 DefinitionsIII. What we can do with GDP DataIV. 5.5 FLUCTUATIONS IN GDPV. 5.6 GDP AS A MEASURE OF WELFAREOutline of Current LectureI. Inequality in Household incomeII. Federal Reserve Economic Database aka FRED (Start of Chapter 6)III. A hint of things to come: Models of the Aggregate labor marketCurrent LectureI. Inequality in Household incomea. (from Gwen Eudey’s Lecture slides)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.b. Reasons for the Spread i. Those in the upper end of the income distribution have DUAL income1. aka more than one person in the household workinga. 3/4 of households in top 5%b. living together, married, college educatedc. Women are now working too and doing welli. makeup of the household has changed over the yearsii. The lower end of the distribution usually only has one income1. single parents, or recent college graduates iii. Top quintile: practically 100% are college educated1. upper end ~$300,000a. a married couple both mid career engineers (~$150,000 salaries), but not necessarily exceptional engineersiv. The range between high and low end was not always this big1. The top 20% are doing much better than the rest of the economy2. Top 5% doing significantly better than the restII. Federal Reserve Economic Database aka FRED (Start of Chapter 6)a. http://research.stlouisfed.org/fred2/b. Recession bars: The gray bars are where GDP is fallingi. Unemployment rises during these bars/ recessionsii. It took 5 years to recover from the Great Depressioniii. Where is the increase in GDP coming from?1. Technologya. EX: Lady working 40 hours a week in BLC, doing everything by hand. i. Lady retires, and Gwen says “why don’t we put all the paperwork online?”ii. Position isn't fired/terminated, her job is just minimized to a 15 hours a week- efficientiv. Employment data comes from monthly survey of firms1. Businesses report how many people they hire, hours each worked,etc2. Shows the number of people who DO have jobsv. In order to figure out who does not have a job1. Government’s Department of Labor uses phone survey to survey householdsa. Must use landlines for these surveys, illegal to solicit on cellphones stilli. Most of those who still have landlines are old or poor - only ones reached to take the surveyii. Therefore Biased data- biased upwards towards higher unemployment1. Level of the numbers is not very good2. Those with jobs have better things to do than sit and take a surveyb. The survey asks who is working, how old is everyone, whatkinds of jobs are in this household?i. Ex: market jobs?ii. non market? such as cleaning or childcare?2. Unemployment: only those actively looking for a joba. Does NOT include: college students, retired, or those on disabilityb. 5-6% is average unemployment rate for USc. Today’s Economy: things are better, maybe we’re doing okay? in that range somewhere….III. A hint of things to come: Models of the Aggregate labor market a. Three main types of economic models of the Labor Marketi. Classical model: Labor Supply = Labor Demand (Ls=Ld)1. Perfect competition2. EX: market for grapes. a. Prices clear, everyone who wants a job has a job, markets quickly go to equilibriumii. Neo-classical model of frictions: Ls never equals Ld1. Frictions in Marketsa. Not as smooth as the invisible hand getting one price in the marketb. Idiosyncracies i. among workers and jobs, search/training/ relocation costs) make labor markets different fromthe market for grapes. There are always people looking for jobs as they search/hold-out for a good match. When the economy gets a “shock”, frictions keep us from instantly going to (possibly one of many) equilibriumii. EX: Imagine you and significant other have Graphic Design jobs in Madison1. Then significant other gets a job in California2. You go with but do not have a job therea. You dont just stand and wait for anyone to hire you (as a grape wouldbe waiting for a buyer)3. Look for Particular thingsa. Tech graphic design or art graphic designb. Parking lot, no travel, etc4. You are going to “Search” for the perfect Match for youa. and while you're searching you are happily unemployed and looking around, taking the time to find the right job for you5. The firm is going to do the same thingiii. Neo-Keynesian model: Wages and Prices are “sticky”1. believe that markets breaka. Ls = Ld in equilibrium as in the classical model, but when the economy gets a “shock” it takes a while for wages and prices to adjust, so we stay out of equilibrium for long periods of time.b. Ex: Harley Davidsoni. said to employees there will be a pay cutii. union refuses so they have to fire everybody1. due to moving to Iowa- tax breaks ect.iii. The union comes back and says “okay fine we’ll take the pay cut”1. Wages to readjust took some time and was “sticky”b. In chapter 7, we’ll use the Classical Model- which no one uses, we know it is wrong, but it will be easy give us intuitive direction, and we will understand itc. In chapter 9, after 1st midterm- we will use neo-keynesiand. Back to Chapter 6i. Employment moves around a lot over the business cycleii. Unemployment is never zero (Ls never equals Ld)1. Friction’s keeping supply from equalling demand. e. **** IMPORTANT SLIDE**** i. 6.1 EXAMINING UNEMPLOYMENT1. The Unemployeda. Individuals who do not currently have a job but are activelylooking for work. 2. The labor forcea. The total number of workers, both the employed and the unemployed.3. The unemployment ratea. The percentage of the labor force that is unemployed4. The labor force participation ratea. The percentage of the population over 16 years of age thatis in the labor force. i. only a portion of the elderly are in this- at some point they are too old to workb. Green + orange relative to the whole populationc. moves over the business cyclei. falls during recessions, rises during booms1. during downturns, often ~40 and under will go back to school/ get more skills2. Discouraged workers: A lot of people “give up”a. laid off, getting old don’t want to have to learn the new technology if they try to go back when the economy is
View Full Document
Unlocking...