chapter 28 unemployment and its natural rate. 28.1 identifying unemployment categories of...

Chapter 28 Unemployment and Its

Natural Rate

28.1 IDENTIFYING UNEMPLOYMENT

• Categories of Unemployment

– The problem of unemployment is usually divided into two categories.

– The long-run problem and the short-run problem:

• The natural rate of unemployment

• The cyclical rate of unemployment


• Natural Rate of Unemployment

– The natural rate of unemployment is unemployment that does not go away on its own even in the long run.

– It is the amount of unemployment that the economy normally experiences.


• Cyclical Unemployment

– Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate.

– It is associated with with short-term ups and downs of the business cycle.


• Describing Unemployment

– Three Basic Questions:

• How does government measure the economy’s rate of unemployment?

• What problems arise in interpreting the unemployment data?

• How long are the unemployed typically without work?

28.1.1 How Is Unemployment Measured?

• Unemployment is measured by the Bureau of Labor Statistics (BLS).

– It surveys 60,000 randomly selected households every month.

– The survey is called the Current Population Survey.


• Based on the answers to the survey questions, the BLS places each adult into one of three categories:

– Employed

– Unemployed

– Not in the labor force


• The BLS considers a person (an adult if he or she is over 16 years old.)


• A person is considered employed if he or she has spent most of the previous week working at a paid job.


• A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.


• A person who fits neither of these categories, such as a full-time student, homemaker, or retiree, is not in the labor force.


• Labor Force

– The labor force is the total number of workers, including both the employed and the unemployed.

– The BLS defines the labor force as the sum of the employed and the unemployed.

Figure 1 The Breakdown of the Population in 2001

Copyright©2003 Southwestern/Thomson Learning

AdultPopulation

(211.9 million)

Labor Force(141.8 million)

Employed(135.1 million)

Not in labor force(70.1 million)

Unemployed (6.7 million)


• The unemployment rate is calculated as the percentage of the labor force that is unemployed.

U n em p lo y m en t ra te =N u m b er u n e m p lo y ed

L ab o r fo rce 1 0 0

• The labor-force participation rate is the percentage of the adult population that is in the labor force.


L ab o r fo rce p artic ip a tio n ra te

L ab o r fo rce

A d u lt p o p u la tio n 1 0 0

Table 1 The Labor-Market Experiences of Various Demographic Groups

Figure 2 Unemployment Rate Since 1960

10

8

6

4

2

01970 19751960 1965 1980 1985 1990 2005

Percent ofLabor Force

1995 2000

Natural rate ofunemployment

Unemployment rate

Figure 3 Labor Force Participation Rates for Men and Women Since 1950

100

80

60

40

20

01950 1955 1960 1965 1970 1975 1980 1985 1990 2000

Labor-ForceParticipation

Rate (in percent)

Women

Men

1995

28.1.2 Does the Unemployment Rate Measure What We Want It To?

• It is difficult to distinguish between a person who is unemployed and a person who is not in the labor force.

• Discouraged workers, people who would like to work but have given up looking for jobs after an unsuccessful search, don’t show up in unemployment statistics.

• Other people may claim to be unemployed in order to receive financial assistance, even though they aren’t looking for work.

28.1.3 How Long Are the Unemployed without Work?

• Most spells of unemployment are short.

• Most unemployment observed at any given time is long-term.

• Most of the economy’s unemployment problem is attributable to relatively few workers who are jobless for long periods of time.

28.1.4 Why Are There Always Some People Unemployed?

• In an ideal labor market, wages would adjust to balance the supply and demand for labor, ensuring that all workers would be fully employed.


• Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suit their tastes and skills.


• Structural unemployment is the unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

28.2 JOB SEARCH

28.2 JOB SEARCH

• Job search

– One reason why economies always experience some unemployment is job search.

– Job search is the process by which workers find appropriate jobs given their tastes and skills.

– results from the fact that it takes time for qualified individuals to be matched with appropriate jobs.

28.2 JOB SEARCH

• This unemployment is different from the other types of unemployment.

– It is not caused by a wage rate higher than equilibrium.

– It is caused by the time spent searching for the “right” job.

28.2.1 Why Some Frictional Unemployment is Inevitable

• Frictional Unemployment is inevitable simple because the economy is always changing.

• Changes in the composition of demand among industries or regions are called sectoral shifts.

• It takes time for workers to search for and find jobs in new sectors.

28.2.2 Public Policy and Job Search

• Government programs can affect the time it takes unemployed workers to find new jobs.

• These programs include the following:

– Government-run employment agencies

– Public training programs

– Unemployment insurance


• Government-run employment agencies 政府管理的就业机构 give out information about job vacancies in order to match workers and jobs more quickly.

• Public training programs 公共培训计划 aim to ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty.


• Unemployment insurance is a government program that partially protects workers’ incomes when they become unemployed.

– Offers workers partial protection against job losses.

– Offers partial payment of former wages for a limited time to those who are laid off.


• While Unemployment insurance reduces the hardship of unemployment, it also increases the amount of unemployment.

• It reduces the search efforts of the unemployed.

• It may improve the chances of workers being matched with the right jobs.


• Many studies by labor economists have examined the incentive effects of unemployment insurance.

• On study examined an experiment run by the state of Illinois in 1985……This experiment show that the design of the unemployment insurance system influences the effort that the unemployed devote to job search.

• Several other studies examined search effort by following a group of workers over time. Unemployment insurance benefits, rather than lasting forever, usually run out after six months or a year. These studies found that when the unemployed become ineligible for benefits, the probability of their finding a new job rises markedly. Thus receiving unemployment insurance benefits does reduce the search effort of the unemployed.


• Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded.

• Structural unemployment is often thought to explain longer spells of unemployment.


• Why is there Structural Unemployment?

– Minimum-wage laws

– Unions

– Efficiency wages

28.3 MINIMUM-WAGE LAWS

• When the minimum wage is set above the level that balances supply and demand, it creates unemployment.

Figure 4 Unemployment from a Wage Above the Equilibrium Level

Quantity ofLabor

0

Surplus of labor =Unemployment

Laborsupply

Labordemand

Wage

Minimumwage

LD LS

WE

LE

28.4 UNIONS AND COLLECTIVE BARGAINING

• A union is a worker association that bargains with employers over wages and working conditions.

• In the 1940s and 1950s, when unions were at their peak, about a third of the U.S. labor force was unionized.

• A union is a type of cartel attempting to exert its market power.


• The process by which unions and firms agree on the terms of employment is called collective bargaining.


• A strike will be organized if the union and the firm cannot reach an agreement.

• A strike refers to when the union organizes a withdrawal of labor from the firm.


• A strike makes some workers better off and other workers worse off.

• Workers in unions (insiders) reap the benefits of collective bargaining, while workers not in the union (outsiders) bear some of the costs.


• By acting as a cartel with ability to strike or otherwise impose high costs on employers, unions usually achieve above-equilibrium wages for their members.

• Union workers earn 10 to 20 percent more than nonunion workers.

28.4.2 Are Unions Good or Bad for the Economy?

• Critics argue that unions cause the allocation of labor to be inefficient and inequitable.– Wages above the competitive level

reduce the quantity of labor demanded and cause unemployment.

– Some workers benefit at the expense of other workers.

28.4.2 Are Unions Good or Bad for the Economy?

• Advocates of unions contend that unions are a necessary antidote to the market power of firms that hire workers.

• They claim that unions are important for helping firms respond efficiently to workers’ concerns.

28.5 THE THEORY OF EFFICIENCY WAGES

• Efficiency wages are above-equilibrium wages paid by firms in order to increase worker productivity.

• The theory of efficiency wages states that firms operate more efficiently if wages are above the equilibrium level. Therefore, it may be profitable for firms to keep wages high even in the presence of a surplus of labor.


• A firm may prefer higher than equilibrium wages for the following reasons:

– Worker Health: Better paid workers eat a better diet and thus are more productive.

– Worker Turnover: A higher paid worker is less likely to look for another job.


• A firm may prefer higher than equilibrium wages for the following reasons:

– Worker Effort: Higher wages motivate workers to put forward their best effort.

– Worker Quality: Higher wages attract a better pool of workers to apply for jobs.

Case Study: Henry Ford and the very generous $5-a-day wage

• In 1914, Ford introduced another innovation: the $5 workday ($5was about twice the going wage). It was also far above the wage that balanced supply and demand……

• Ford’s high-wage policy had many of the effects predicted by efficiency-wage theory. Turnover fell, absenteeism fell, and productivity rose. Workers were so much more efficient that Ford’s production costs were lower even though wages were higher. Thus paying a wage above the equilibrium level was profitable for the firm.

Case Study: Henry Ford and the very generous $5-a-day wage

• Why did it take Henry Ford to introduce this efficiency wage? Why were other firms not already taking advantage of this seemingly profitable business strategy? According to some analysts, Ford’s decision was closely linked to his use of the assembly line. Workers organized in an assembly line are highly interdependent. If one worker is absent or works slowly, other workers are less able to complete their own tasks. Thus, while assembly lines made production more efficient, they also raised the importance of low worker turnover, high worker quality, and high worker effort.

Summary

• The unemployment rate is the percentage of those who would like to work but don’t have jobs.

• The Bureau of Labor Statistics calculates this statistic monthly.

• The unemployment rate is an imperfect measure of joblessness.

Summary

• In the U.S. economy, most people who become unemployed find work within a short period of time.

• Most unemployment observed at any given time is attributable to a few people who are unemployed for long periods of time.

Summary

• One reason for unemployment is the time it takes for workers to search for jobs that best suit their tastes and skills.

• A second reason why our economy always has some unemployment is minimum-wage laws.

• Minimum-wage laws raise the quantity of labor supplied and reduce the quantity demanded.

Summary

• A third reason for unemployment is the market power of unions.

• A fourth reason for unemployment is suggested by the theory of efficiency wages.

• High wages can improve worker health, lower worker turnover, increase worker effort, and raise worker quality.

复习题

1 ．劳工统计局把每个人划入哪三个范畴？它如何计算劳动力、失业率以及劳动力参工率？

2 ．失业在正常情况下是短期的还是长期的？试解释之。3 ．为什么摩擦性失业是不可避免的？政府如何降低摩擦性失业的数量？

4. 最低工资法能更好地解释青少年的失业还是大学毕业生的失业？为什么？

5. 工会如何影响自然失业率？6. 工会的支持者提出了哪些观点来证明工会对经济有利？7. 解释企业通过提高它所支付的工资增加利润的四种方式。

8. Theory of efficiency wages? (Mankiw, p616-618.)

9. What is Minimum-wage laws? What is effects of Minimum-wage laws in different labor markets?

Mankiw Chapter28: Problem

1. Why is frictional unemployment inevitable? How might the government reduce the amount of frictional unemployment? (Mankiw,ch.28-p608.)

2. Explain four ways in which a firm might increase its profits by raising the wages it pays. (Mankiw,ch.28-p617-618.)

• (Mankiw-Chapter28-problem6, p622,) Are the following workers more likely to experience short-term or long-term unemployment? Explain.

a)A construction worker laid off because of bad weather.

b)A manufacturing worker who loses her job at a plant in an isolated area.

c)A stagecoach-industry worker laid off because of competition from railroads.

d)A short-order cook who loses his job when a new restaurant opens across the street.

e) An expert welder with little formal education who loses her job when the company installs automatic welding machinery.

• (Mankiw-Chapter28-problem6, p622,) Are the following workers more likely to experience short-term or long-term unemployment? Explain.

a) A construction worker laid off because of bad weather.(short-term unemployment)

b)A manufacturing worker who loses her job at a plant in an isolated area.(long-term unemployment)

c)A stagecoach-industry worker 驿站业劳动者 laid off because of competition from railroads.(long-term unemployment)

d)A short-order cook 快餐厨师 who loses his job when a new restaurant opens across the street.(short-term unemployment)

e)An expert welder 专业焊接工 with little formal education who loses her job when the company installs automatic welding machinery. (long-term unemployment)

• (Mankiw-Chapter28-problem 7,p622,) Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment. 用劳动力市场的图形说明最低工资的增加对工人所得到的工资、工人供给量、工人需求量和失业量的影响。

chapter 28 unemployment and its natural rate. 28.1 identifying unemployment categories of...

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