macro lecture 3
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MacroLecture3
Jobs and UnemploymentLecture Highlights
the labor market status of the population
the trends and fluctuations in the
indicators of labor market performance
sources and types of unemployment,
define full employment, and explain the
link between unemployment and real GDP
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Recessions, depressions, and
Unemployment The business cycle describes the periodic
ups and downs in the economy, or
deviations of output and employment awayfrom the long-run trend.
A recession is roughly a period in whichreal GDP declines for at least twoconsecutive quarters. It is marked byfalling output and rising unemployment
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Contd.
A depression is a prolonged and deep
recession. The precise definitions of
prolonged and deep are debatable. Capacity utility rates, which show the
percentage of factory capacity being used
in production are one indicator of arecession.
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Defining and Measuring
Unemployment The most frequently discussed symptom
of a recession is unemployment.
The working-age populationtotalnumber of people age 16 years and overwho are not in jail, hospital,or some otherform of institutional care.
Labor forcethe number of peopleemployed plus the number unemployed.
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Contd.
An employed person is any person 16 yearsold or older.
(i) Who works for pay, either for someone else orin his or her own business for 1 or more hoursper week.
(ii) Who works without pay for 15 hours or more
hours per week in a family enterprise, or(iii) Who has a job but has been temporarily
absent, with or without pay.
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Contd.
An unemployed person is a person 16 years old or olderwho
(i) is not working.
(ii) is available for work, and(iii) has made specific efforts to find work during the
previous 4 weeks.
A person who is not looking for work, either because heor she does not want a job or has given up looking, is not
in the labor force. Unemployment ratethe percentage of the people in
the labor force who are unemployed.
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Contd.
unemployment rate = no. of people unemployed X 100____________________
Labor force
e.g. In June 2002, the number of people unemployed was
8.7 million and the labor force was 143.7 million.
Unemployment rate = 8.7 X 100 = 6.1%____
143.7
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Contd.
labor force participation ratethe percentage ofthe working-age population who are members ofthe labor force.
Labor participation rate = Labor force X 100
__________
working-age population
e.g. In June 2002, the labor force was 143.7 million and the working-age population was 213.8 million.
Labor force participation rate = 143.7 X 100
_____ = 67.2%
213.8
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The Discouraged-Worker Effect
The discouraged-worker effect lowers the
unemployment rate.
Discouraged workers are people who wantto work but cannot find jobs. They grow
discouraged and stop looking for work,
thus dropping out of the ranks of theunemployed and the labor force.
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The Sources and Types of
Unemployment How do people become unemployed, how long do
they remain unemployed and who is at greatest risk tobecome unemployed?
sources of unemploymentsome people move into the labor force, and somemove out of it.
People who become unemployed are
(i) Job losers(ii) Job leavers
(iii) Entrants or reentrants
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Job losers
People who are fired or laid off from their jobs either permanentlyor temporarily.
Reasons people lose their jobs:
(i) Not a good match for the job theyre doing.
(ii) Firms fail.(iii) New technology destroys some jobs.
A job loser has two choices: look for another job or withdraw fromthe labor force.
A job loser who decides to look for a new job remains in the laborforceunemployed.
Those withdraw from the labor force is not counted as beingunemployed.
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Job leavers
People who voluntarily quit their jobs.
People who leave their jobs for two reasons:
(i) Either theyve gotten a better job or theyvedecided to withdraw from the labor force.
Neither of these types of job leavers becomes
unemployed.
(ii) A few people quit their jobs because they want
a better jobunemployed.
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Entrants and reentrants
People who have just left school and entered the
job market are called entrants.
Many entrants spend time searching for theirfirst jobduring this period, they are
unemployed.
People who have previously had jobs, then quit
and left the labor force and have now decided to
look for jobs are called reentrants.
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Contd.
How unemployment ends
People who end a period of unemployment are either hiresand recalls or withdrawals.
Hires and recallsPeople who have been unemployed but have been hired to
start a new job are called hires.
People who have been temporarily laid off and who startwork again are called recalls.
WithdrawalsPeople who have been unemployed and who decide to
stop looking for jobs are called withdrawals.
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Labor market flow
unemployed employedNot in labor force
Entrants, reentrants
Hires,entrants
Job losers, job
leavers
Job losers, job leavers, retirees
withdrawals
Entrants,reentrants
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Types of Unemployment
Frictional unemployment
Structural unemployment
Seasonal unemployment
Cyclical unemployment
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Frictional unemployment
the unemployment that arises from normallabor turnover. From people entering andleaving the labor force and from the ongoing
creation and destruction of jobs.The amount of frictional unemployment depends
on
(i) The rate at which people enter and reenter the
labor force and on the rate at which jobs arecreated and destroyed.
(ii) Unemployment compensation increases thenumber of unemployed higher frictionalunemployment.
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Structural unemployment
the unemployment that arises when
changes in technology or international
competition change the skills needed toperform jobs or change the locations of
jobs.
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Seasonal unemployment
the unemployment that arises because of
seasonal weather patterns.
Unemployment increases during the wintermonths and decreases during the spring
and summer.
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Cyclical unemployment
the fluctuating unemployment over the
business cycle. Unemployment increases
during a recession and decreases duringan expansion.
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Full employment
full employment occurs when there is no cyclicalunemployment or when all the unemployment isfrictional, structural, and seasonal.
the divergence of the unemployment rate fromfull employment is cyclical unemployment.
The unemployment rate at full employment iscalled the natural unemployment rate.
potential GDPthe level of real GDP that theeconomy would produce if it were at fullemployment.
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