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Chapter 15 - Unemployment

by: Erin Payne

Chapter 15 - Unemployment Econ 110

Marketplace > Kansas State University > Economcs > Econ 110 > Chapter 15 Unemployment
Erin Payne

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About this Document

These notes cover the lectures of Dr. Mohaned Al-Hamdi for the weeks 4/6/16 - 4/11/16 (Week 11).
principles of Macroeconomics
Dr. Al-Hamdi
Class Notes
Macroeconomics, Econ, 110, Chapter15, unemployment
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This 5 page Class Notes was uploaded by Erin Payne on Friday April 22, 2016. The Class Notes belongs to Econ 110 at Kansas State University taught by Dr. Al-Hamdi in Spring 2016. Since its upload, it has received 29 views. For similar materials see principles of Macroeconomics in Economcs at Kansas State University.


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Date Created: 04/22/16
  Week 11  April 6th ­ April 11th  Spring 201  Chapter 15 Notes  Unemployment    ● Employed  ○ Those who worked.  ■ Paid employees.  ■ In their own business.  ■ Unpaid workers in family member’s business.  ○ Full­time and part­time workers.  ○ Temporarily absent.  ■ Includes vacations, illness, bad weather, maternity leave, etc.  ● Unemployed  ○ Those who were not employed.  ■ Available for work.  ■ Tried to find employment during the previous four weeks.  ○ Those waiting to be recalled to a job.  ■ Laid off.  ● Not in the Labor Force  ○ Not employed and not unemployed.  ○ Full­time students.  ○ Homemakers.  ○ Retirees.  ● Labor Force  ○ The total number of workers, employed and unemployed.  ○ ∴Labor Force = # of Employed + # of Unemployed  ● Unemployment Rate  ○ Percentage of labor force that is unemployed.  Number of Unemployed ○ Unemployment rate =  Labor Force  X 100  ● Labor­Force Participation Rate  ○ Percentage of the total adult population that is in the labor force.  ○ Fraction of the population that has chosen to participate in the labor market.  Labor Force ○ Labor­force participation rate =  Adult Population00  ● Labor­Market Experiences  ○ Women of prime working age (25­54)  ■ Lower rates of labor­force participation than men.  ○ Once in the labor force  ■ Men and women ­ similar rates of unemployment.  ○ Blacks of prime working age  Notes Key Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided  y instructor.     Week 11  April 6th ­ April 11th  Spring 201  ■ Similar rates of labor­force participation as prime­age whites.  ■ Much higher rates of unemployment.  ○ Teenagers  ■ Lower rates of labor­force participation.  ■ Much higher rates on unemployment than older workers.  ● Natural Rate of Unemployment  ○ Calculated by Congressional Budget office  ○ Normal rate of unemployment around which the unemployment rate fluctuates.  ● Cyclical Unemployment  ○ Deviation of unemployment from natural rate.  ● Official Unemployment Rate  ○ Useful.  ○ Imperfect measure of joblessness.  ● Movement into and out of the labor force  ○ Common.  ○ More than one­third of unemployed.  ■ Recent entrants into the labor force.  ● Unemployment  ○ Not all unemployment ends with the job seeker finding a job.  ■ Half of all spells of unemployment and when the unemployed leaves the  labor force.  ● Some of those who report being unemployed  ○ May not be trying to find a job.  ■ Want to qualify for government help.  ■ Working but paid “under the table”.  ● Some of those who are out of labor force  ○ May want to work.  ■ Discouraged workers.  ● Discouraged Workers:  ○ Individuals who would like to work.  ○ Have given up looking for a job.  ● How long are they unemployed without work?  ○ Most spells of unemployment are short.  ○ Most unemployment observed at any given time is long­term.  ○ Most people who become unemployed will soon find jobs.  ● Unemployment never reaches zero.  ● Unemployment Rate  ○ Fluctuates around the natural rate of unemployment.    Notes Key Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided  y instructor.     Week 11  April 6th ­ April 11th  Spring 201  ● Frictional Unemployment  ○ It takes time for workers to search for the jobs that best suit their tastes and skills.  ○ Explain relatively short spells of unemployment.  ● Structural Unemployment  ○ Results because the number of jobs available in some labor markets.  ■ Is insufficient to provide a job for everyone who wants one.  ○ Explains longer spells of unemployment.  ○ Results when wages are set above the equilibrium.  ■ Minimum­wage laws, unions, and efficiency wages.  ● Job Search  ○ Process by which workers find appropriate jobs given their tastes and skills.  ■ Workers differ in their tastes and skills.  ■ Jobs differ in their attributes.  ■ Information about job candidates and job vacancies is disseminated  slowly.  ● Some frictional unemployment is inevitable.  ○ Changes in demand for labor among different firms.  ○ Changes in composition of demand among industries or regions (sectional shifts).  ○ The economy is always changing.  ■ Jobs created in some firms.  ■ Jobs destroyed in other firms.  ● Reduce time for unemployed to find jobs.  ○ Reduce natural rate of unemployment.  ● Government programs ­ facilitates job search.  ○ Government ­ run employment agencies.  ○ Public training programs.  ● Unemployment Insurance  ○ Government program.  ○ Partially protects workers’ incomes when they become unemployed.  ○ Increases frictional unemployment without intending to do so.  ○ Qualify ­ only the unemployed who were laid off because their previous  employers no longer needed their skills.  ○ 50% of former wages for twenty­six weeks.  ○ Reduces the hardship of unemployment.  ○ Increase the amount of unemployment.  ■ Unemployment benefits stop when a worker takes a new job.  ■ Unemployed  ● Devote less effort to job search.  ● More likely to turn down unattractive job offers.  Notes Key:Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided b  instructor.     Week 11  April 6th ­ April 11th  Spring 201  ● Less likely to seek guarantees of job security.  ● Structural Unemployment  ○ Number of jobs ­ insufficient.  ● Minimum­wage laws.  ○ Can cause unemployment.  ○ Forces the wage to remain above the equilibrium level.  ■ Higher quantity of labor supplied.  ■ Smaller quantity of labor demanded.  ■ Surplus of labor = unemployment.  ● Structural unemployment: Q = Labor > Qd Labor.  ● Surplus of workers created by minimum wage = unemployment.  ● Wages may be kept above equilibrium  ○ Minimum­wage laws.  ○ Unions.  ○ Efficiency wages.  ● If the wage is kept above the equilibrium level  ○ Result: Unemployment.  ● Union  ○ Worker association.  ○ Bargains with employers over.  ■ Wages, benefits, and working conditions.  ○ 11% of U.S. workers.  ○ Type of cartel.  ● Collective bargaining  ○ Process by which unions and firms agree on the terms of employment.  ● Strike  ○ Organized withdrawal of labor from a firm by a union.  ○ Reduces production, sales, and profit.  ● Union Workers  ○ Earn 10­20% more than similar workers who do not belong to unions.  ● Union ­ raises the wage above the equilibrium level.  ○ Higher quantity of labor supplied.  ○ Small quantity of labor demanded.  ○ Unemployment.  ○ Better off: employed workers (insiders).  ○ Worse off: unemployed (outsiders).  ■ May stay unemployed.  ■ Take jobs in firms that are not unionized.  ○ Supply of labor in industries not unionized will increase, lower wages.  Notes Key Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided  y instructor.     Week 11  April 6th ­ April 11th  Spring 201  ● Workers in Unions  ○ Reap the benefit of collective bargaining.  ● Workers not in Unions  ○ Bear some of the cost.  ● Are unions good or bad for the economy?  ○ Critics  ■ Unions ­ type of cartel.  ■ Allocation of labor.  ● Inefficient ­ high union wages reduce employment in unionized  firms below the efficient level.  ● Inequitable ­ some workers benefit at the expense of other workers.  ○ Advocates  ■ Unions ­ necessary antidote to the market power of the firms that hire  workers.  ● In the absence of a union, firms pay lower wages and offer worse  working conditions.  ■ Unions ­ help firms respond efficiently to workers’ concerns.  ● Keep a happy and productive workforce.  ● Efficiency Wages  ○ Above­equilibrium wages paid by firms to increase workers productivity.  ■ Worker health; Worker turnover.  ■ Worker quality; Worker effort.  ■ Ex. Henry Ford, founder of Ford Motor Company  ● Worker Health  ○ Better paid workers.  ■ Eat a more nutritious diet.  ■ Healthier and more productive.  ● Worker Turnover  ○ Firm ­ can reduce turnover among its workers by paying them a high wage.  ● Worker Quality  ○ Firm ­ pays a high wage  ■ Attracts a better pool of workers.  ■ Increases the quality of its workforce.  ● Worker Effort  ○ High wages ­ make workers more eager to keep their jobs.  ■ Give workers an incentive to put forward their best effort.  Notes Key:Bolded texts = most important facts stressed by professor.       ∴ symbol = “Therefore” or “In other words”.       “ ” = Specific definition or word choice provided b  instructor.  


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