Econ 2030 Lecture 3&4
Econ 2030 Lecture 3&4 Econ 2030
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This 5 page Class Notes was uploaded by Melissa Cooey on Friday February 5, 2016. The Class Notes belongs to Econ 2030 at Auburn University taught by Dr. Stern in Spring 2016. Since its upload, it has received 37 views. For similar materials see Macroeconomics in Economcs at Auburn University.
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Date Created: 02/05/16
Friday, February 5, y Lecture 3 continued … The GDP Deflator Price level a measure of the average prices of goods and services in the economy. GDP Deflator a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100. Inflation percentage change in the price level. GDP deflator = (Nominal GDP/Real GDP) x100% Inflation = (GDP deflator year 2 GDP deflator year 1/GDP deflator year 1) x100% 1 Friday, February 5, y Lecture 4 Unemployment Measuring Unemployment There are more than 300 million people living in the United States, and monitoring and and reporting their activities regularly would be very difficult and and costly. Instead, the U.S. Department of Labor reports estimates of employment, unemployment, and other statistics related to the labor force each month. Of these statistics, the most watched is known as the unemployment rate: the percentage of the labor force that is unemployed. Classifications Working Age Population (WAP) Noninstitutionalized individuals 16 years or older. Employed (E) Anyone in the WAP who: did any work at all as a paid employee worked in their own business, profession, or on their own farm. worked 15 hours or more as unpaid workers in a familyoperated enterprise. did not work but had jobs or businesses from which they were temporarily absent because of illness, vacation, labor dispute, etc. parttime, “unemployed”, and selfemployed (home businesses) persons are counted as employed. Unemployed (U) 2 Friday, February 5, y Anyone in WAP who is not employed and: has actively looked for a job during the survey period (last 4 weeks). is waiting to be recalled for a job from which they were laid off. Labor Force (LF) Anyone who is employed (E) or unemployed (U) is measured as: LF = E+U Discouraged Workers people who are available for worked but have not looked for a job during the previous 4 weeks because they believe no jobs are available for them. NOT included in the labor force. Important Labor Market Statistics The Unemployment Rate (UR) measures the percentage of the labor force that is unemployed: UR = (U/LF) x100% The Employment Rate (ER) measures the percentage of the labor force that is employed: ER = (E/LF) x100% The Labor Force Participation Rate (LFPR) measures the percentage of the workingage population in the work force: LFPR = (LF/WAP) x100% The Employeeto Population Ratio (EPR) measures the percentage of employed in the workingage population: EPR = (E/WAP) x100% 3 Friday, February 5, y Three Types of Unemployment Frictional Unemployment shortterm unemployment that arises from the normal turnover in labor markets. Structural Unemployment unemployment arising from lack of skills; often results from technological progress. Usually lasts longer than frictional unemployment (takes time to acquire a new skill). Cyclical Unemployment unemployment caused by a business cycle (recession). It is impossible to have zero unemployment because of frictional and structural unemployment. Natural (“normal”) rate of unemployment = frictional u + structural u = 56% Explaining Unemployment Unemployment insurance and other payments to the unemployed: In the United States and most other industrial countries, the unemployed are eligible for unemployment insurance payments from the government. In the U.S., these payments are equal to about half the average wage, and are paid for 6 months. In many Western European countries, unemployment insurance is bigger and is paid for a longer time (7080% of the previous wage for over a year). Minimum Wages: In 2009, minimum wage was raised to $7.25/h. If the minimum wage is set above the equilibrium market wage, the quantity of labor supplied will be greater than the quantity of labor demanded, causing unemployment. Economists believe that the current minimum wages is above the market wage for some workers, but they disagree on the amount of unemployment that has resulted. 4 Friday, February 5, y Ironically, minimum wage laws hurt, primarily unskilled (bluecollar) and inexperienced (teenage) workers who they intend to protect. Labor Unions: Bargain with employers for higher wages and better working conditions for their workers. Protect insiders (members of the union) but hurt outsiders, causing unemployment. Efficiency Wages: Some firms choose to pay their employees higherthanmarket wages to increase their productivity and minimize job turnover. Cause unemployment because there may be workers willing to work for less. 5
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