Econ 102 1st Edition Lecture 5 Outline of Last Lecture I. 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 marketOutline of Current LectureI. Examining Unemployment (6.1)II. Categories of Unemployment (6.2)III. Price DataIV. Two measures of “The” Price LevelV. Problem with using the CPI as the Official Price Level EstimateCurrent LectureI. Examining Unemployment (6.1)a. unemployment data comes from surveys of householdsb. Labor Force Participation by womeni. In 1948, the labor force participation rate for women 20 years and older was 32 percent. ii. By 1970, it had grown to 43 percent, and by 1997 it had reached 60 percent. This trend reflected remarkable changes in our economy and society as women dramatically increased their presence in the workforce. iii.Women are biologically affected by childbirthc. Teen Unemploymenti. have less dependents 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.d. African Americansi. Higher unemployment than whitesii. data can be used to identify the problems1. prejudice?e. Married men and womeni. Married in this data: “living with someone in a long term relationship”1. men-women, women-women, men-menii. (from Gwen Eudey’s lecture slides)f. Discouraged workersi. given upii. Workers who left the labor force because they could not find jobs.1. either going back to get better educated or have given up all together, retired, etcg. Workers Underemployed: people working part time for economic reasoni. being forced to work part time, working less than their potential because thats all the economy/ company can afford to give themh. Seasonal Unemployment:i. Data is controlled for seasonal factors, component of unemployment attributed to seasonal factors1. EX: Gwen doesn't become unemployed every June when she's done teaching/ running the BLC. because that is normal2. However, if a Retail store usually hires 100 employees for holiday (seasonal) employment but this year they only hire 80..a. Will be represented in the data because that is not normalII. Categories of Unemployment (6.2)a. Frictional Unemployment: i. holding out for the best matchii. They are trained fine, just lookingb. structural unemploymenti. Unemployment that occurs when there is a mismatch of skills and jobs.ii. They will not find a jobiii.The skills of the individual are not qualified for a job1. no longer useful in the workplaceiv.Must change/improve their skills in order for them to be able to get a jobc. >>Frictional and Structural depend on the individual seeking a job- the economy is fine in these situationsd. Cyclical Unemploymenti. Unemployment that occurs during fluctuations in real GDP.ii. Economy might not be doing welle. N atural Rate of Unemploymenti. The level of unemployment at which there is no cyclical unemployment. It consists of only frictional and structural unemployment. f. F ull Employmenti. The level of unemployment that occurs when the unemployment rate is at the natural rate. g. Unemployment I nsurancei. Payments unemployed people receive from the government.ii. Designed to help you maintain your standard of living whileyou search for a new jobiii.The more money you are making while employed, the more you pay in in premium unemployment insurance, the more you get if you become unemployed.iv.After the recession/ depression, Government chose to extend these benefits longer than 6 months to encourage people to keep searching for the best match jobh. Application 3i. The longer someone is unemployed the less likely they are to hold a job againii. People are unhappy when they are unemployed- suicide rates skyrocket when unemployment rates riseIII. Price Dataa. Consumer Price Index- particular deflatori. Nominal Wages / CPI = Real Wagesii. Measures the standard of living across workersiii.Real wage= “the stuff” you can buy with your wage.IV. Two measures of “The” Price Level a. The consumer price index (CPI): i. A price index that measures the cost of a fixed basket of goods over time; the fixed basket is chosen to represent the consumption pattern of a typical consumer in a base year. b. The personal consumption expenditure deflator (PCE): i. A chain-weighted price index that uses goods and spendingpatterns relevant to the time period of the price data.c. PCE = Nominal Consumption Expenditures ÷ Real Chain-weightedConsumption Expendituresd. CPI in Year K= cost of basket in year K/ cost of basket in base year x 100e. Es^a sub t= Expenditure Share on good “a” in period ti. Expenditure Share: fraction of total spendingii. t= base yeariii.good “a”: ex: applesiv.~ 2 years prior to the most recent yearv. Expenditure Share is called a “basket” because its adding up an lot of different things into one Ex: haircuts, groceries,etc.f. (From Gwen Eudey’s Overhead)i. Numerator is telling you if you bought the same goods as you did in 2012 today, what would it cost you today?1. compared to what it would've costed in base yearg. The personal consumption expenditure deflator (PCE):i. A chain-weighted price index that uses goods and spendingpatterns relevant to the time period of the price data.ii. PCE = Nominal Consumption Expenditures ÷ Real Chain-weighted Consumption ExpendituresV. Problem with using the CPI as the Official Price Level Estimatea. CPI over-estimates inflationb. The CPI is a worse estimate of the cost of living the farther away you get from the base yearc. The weights or “importance” put on prices in the CPI (the basket in the base year)i. Nondurables: mattresses, pillowsii. Rents are included in mortgage paymentsVI. Inflationa. If inflation is negative: called
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