chapter 6 unemployment. unemployment in the u.s. follows a counter- cyclical pattern, rising when...
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![Page 1: Chapter 6 Unemployment. Unemployment in the U.S. follows a counter- cyclical pattern, rising when the economy's GDP is declining, and falling when the](https://reader035.vdocuments.mx/reader035/viewer/2022062313/56649d415503460f94a1c894/html5/thumbnails/1.jpg)
Chapter 6
Unemployment Unemployment
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Unemployment
• Unemployment in the U.S. follows a counter-cyclical pattern, rising when the economy's GDP is declining, and falling when the economy recovers.– It is a lagging indicator, rising only after the
recession has begun, and it peaks well after the recession is officially over.
• Unemployment in the U.S. follows a counter-cyclical pattern, rising when the economy's GDP is declining, and falling when the economy recovers.– It is a lagging indicator, rising only after the
recession has begun, and it peaks well after the recession is officially over.
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U.S. Unemployment through Time
U.S. Unemployment Rates
0
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4
6
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12
1970
1973
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less 5 5-14 15-0ver 15-26 27-over
http://www.bls.gov/fls/flsjec.pdf international comparison
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Measuring Unemployment
• Each month the Bureau of Labor Statistics polls over 50,000 households either in person or by phone.
• The respondents of the survey are classified into one of three categories:
– Unemployed– Employed– Not in the labor force
• The labor force = employed + unemployed
• Each month the Bureau of Labor Statistics polls over 50,000 households either in person or by phone.
• The respondents of the survey are classified into one of three categories:
– Unemployed– Employed– Not in the labor force
• The labor force = employed + unemployed
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Measuring Unemployment
• The unemployment rate is the percentage of the labor force that is unemployed, or
• The unemployment rate is the percentage of the labor force that is unemployed, or
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The Employed
• To be counted as employed, a person must have– worked at a job for pay or profit during the survey
week (the week that contains the 12th of the month).
– worked without pay for more than 15 hours for a family business.
• To be counted as employed, a person must have– worked at a job for pay or profit during the survey
week (the week that contains the 12th of the month).
– worked without pay for more than 15 hours for a family business.
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The Unemployed
• Persons are classified as unemployed if they– do not have a job.– have actively looked for work in the prior four
weeks.– are currently available for work.
• Persons are classified as unemployed if they– do not have a job.– have actively looked for work in the prior four
weeks.– are currently available for work.
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Not in the Labor Force
• A person is classified as not in the labor force if he/she– has no job.
– has not actively looked for work in the prior four weeks.
– is currently unavailable for work except for a temporary illness.
• A person is classified as not in the labor force if he/she– has no job.
– has not actively looked for work in the prior four weeks.
– is currently unavailable for work except for a temporary illness.
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Example: Calculating Unemployment Rates
1. Number “officially” unemployed is 50 – 22 = 28.
2. Number in labor force =
employed + unemployed =
420 + 28 = 448
3. Unemployment rate =
28/448 x 100 = 6.25%.
1. Number “officially” unemployed is 50 – 22 = 28.
2. Number in labor force =
employed + unemployed =
420 + 28 = 448
3. Unemployment rate =
28/448 x 100 = 6.25%.
TABLE 1Labor Force Data
Population 800
Full-time Students 150
Retired 180
Employed 420
Those wanting work* 50*Note: Of those classified as “wanting work", 22 have not actively sought work in the prior four weeks.
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Criticisms of the Unemployment Rate
1. The survey does not count discouraged workers as unemployed.
– A discouraged worker is one who has given up looking for work because they could not find a job or thought that they could not find a job.
– This omission understates “true” unemployment rate because discouraged workers are classified as not in the labor force.
1. The survey does not count discouraged workers as unemployed.
– A discouraged worker is one who has given up looking for work because they could not find a job or thought that they could not find a job.
– This omission understates “true” unemployment rate because discouraged workers are classified as not in the labor force.
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Criticisms of the Unemployment Rate
2. The survey does not account for hidden unemployment.
– Hidden unemployment includes those who are working part-time but wish to have a full-time job and those who are grossly overqualified for their positions, the underemployed.
– This omission also understates the “true” unemployment rate.
2. The survey does not account for hidden unemployment.
– Hidden unemployment includes those who are working part-time but wish to have a full-time job and those who are grossly overqualified for their positions, the underemployed.
– This omission also understates the “true” unemployment rate.
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Criticisms of the Unemployment Rate
3. The surveyor does not check the accuracy of the response to an active job search.
– To be unemployed, a survey respondent must only "say" that he/she has actively sought work.
– This problem potentially overstates the “true” unemployment rate.
3. The surveyor does not check the accuracy of the response to an active job search.
– To be unemployed, a survey respondent must only "say" that he/she has actively sought work.
– This problem potentially overstates the “true” unemployment rate.
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Types of Unemployment
• Frictional unemployment is unemployment that is due to the natural movements in and out of labor force.– in a dynamic economy this frictional
unemployment is healthy.– tends to be short-term and voluntary.
• State data• http://econ124.wustl.edu/sp08/unemployment.h
tml
• Frictional unemployment is unemployment that is due to the natural movements in and out of labor force.– in a dynamic economy this frictional
unemployment is healthy.– tends to be short-term and voluntary.
• State data• http://econ124.wustl.edu/sp08/unemployment.h
tml
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Types of Unemployment
• Structural unemployment is unemployment that is typically due to changes in technology or international competitiveness. in a dynamic economy this frictional unemployment is healthy.– result of some fundamental shift in the economy– example: U.S. steelworkers laid off when the steel
production moved to Asia.– tends to be long term and involuntary.
• Structural unemployment is unemployment that is typically due to changes in technology or international competitiveness. in a dynamic economy this frictional unemployment is healthy.– result of some fundamental shift in the economy– example: U.S. steelworkers laid off when the steel
production moved to Asia.– tends to be long term and involuntary.
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Types of Unemployment
• Cyclical unemployment is unemployment that is due to a downturn in the business cycle.– Changes in these unemployment rates are counter-
cyclical.– A primary goal of stabilization policy is to achieve
zero cyclical unemployment.
• Cyclical unemployment is unemployment that is due to a downturn in the business cycle.– Changes in these unemployment rates are counter-
cyclical.– A primary goal of stabilization policy is to achieve
zero cyclical unemployment.
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The Natural Rate of Unemployment
• Frictional and structural unemployment are unavoidable in a dynamic economy. These two combined are called the natural rate of unemployment, or the full-employment rate of unemployment.– There is nothing that macroeconomic policy can do to
reduce or eliminate frictional and structural unemployment.
– Many economists estimate the U.S. natural rate of unemployment to be between 5 percent and 5.5 percent.
• Frictional and structural unemployment are unavoidable in a dynamic economy. These two combined are called the natural rate of unemployment, or the full-employment rate of unemployment.– There is nothing that macroeconomic policy can do to
reduce or eliminate frictional and structural unemployment.
– Many economists estimate the U.S. natural rate of unemployment to be between 5 percent and 5.5 percent.
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Costs of Unemployment
• The economics cost of unemployment is the lost output and, hence, lost consumption due to idle labor resource.
• Potential output is the level of GDP the economy would attain if all resources were fully employed.
• The economics cost of unemployment is the lost output and, hence, lost consumption due to idle labor resource.
• Potential output is the level of GDP the economy would attain if all resources were fully employed.
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